Fears of slowdown abroad dampen Japanese sentiment
Confidence among manufacturers drops from three-year high amid concern over emerging markets and weaker yen despite export surge
Confidence among Japanese manufacturers has slipped from a three-year high on worries about a slowdown in emerging markets, although the fastest growth in exports since late 2010 suggests the economy is still building momentum.
Prime Minister Shinzo Abe's reflationary policies and central bank stimulus weakened the yen during the first half of the year, and exports look to be benefiting from that as demand starts to pick up in major economies.
But the weaker yen also increased the import bill and pushed the trade balance into a 14th successive deficit last month, matching a record streak in 1979 and 1980 and suggesting the economy's export-led growth model needs to be reviewed.
"I cannot foresee an end to trade deficits, although exports will continue to pick up due to a weak yen and improvement in Europe," said Takuya Hoshino, an economist at the Dai-ichi Life Research Institute.
"Business sentiment was down, reflecting a slowdown in emerging economies and the impact of a weak yen boosting import costs, but still it is at high levels. Today's data confirms an economic recovery continuing towards early next year."
A monthly poll, which is strongly correlated with the Bank of Japan's tankan poll, showed sentiment among manufacturers fell to plus 12 this month, its lowest since May, from a three-year high of 16 last month. It is seen rebounding to plus 19 in December, according to the poll of 400 large and medium-sized companies this month.
Data from the finance ministry showed exports rose 14.7 per cent in the first eight months of the year, in line with market expectations and their fastest growth since August 2010, led by shipments of cars to the United States.
Imports rose 16 per cent, below expectations, as the weaker yen compounded higher demand for fossil fuel after Japan shut down its nuclear power plants following the Fukushima crisis. That led to a trade deficit of 960.3 billion yen (HK$75.2 billion) for last month.
In the poll, the manufacturers' index was down three points from three months earlier, while the service-sector index was unchanged, pointing to tepid gains in the Bank of Japan's closely watched quarterly tankan survey, the results of which will be released on October 1. The central bank upgraded its assessment of the economy earlier this month to say it was recovering moderately. In the poll, however, many firms said they did not feel a fully recovery was taking hold.
"The economy may be in a recovery trend, but people in the medium to low-income groups are tightening their belts amid worries about sales tax rises while their incomes have hardly improved," a textile producer said.