Japan Tankan Sentiment Worsens as Global Slowdown Hurts Exports – Businessweek

Big Japanese manufacturers became
more pessimistic as slowdowns in China and Europe sapped export
demand and pushed the nation closer to an economic contraction.

The quarterly Tankan index for large manufacturers fell in
September to minus 3 from minus 1, the fourth negative reading,
the Bank of Japan said today in Tokyo. The median estimate of 18
economists surveyed by Bloomberg News was for minus 4. A
negative figure means pessimists outnumber optimists.

Today’s report follows data last week showing a second
monthly decline in industrial production in August, and JPMorgan
Securities and Credit Suisse Group AG said that Japan’s economy
probably shrank in the third quarter. With consumer prices still
falling, the BOJ may be forced to add stimulus again this month
as it remains distant from its 1 percent inflation target.

“Japan’s economy will probably have two consecutive
quarters of contraction in the July-September and October-
December periods,” said Kiichi Murashima, chief economist at
Citigroup Global Markets Japan Inc. “Exports are the main
reason for the economic contraction.”

Shipments have fallen for three months, slipping 22.9
percent in August to the European Union and 9.9 percent to
China. “Economic conditions in Japan’s main export markets are
very unstable,” Finance Minister Jun Azumi said on Sept. 28.

Regional Tensions

Growth is further threatened by a spat between Japan and
China over islands claimed by both nations in the East China
Sea. The crisis is hurting the $340 billion trade relationship
between Asia’s two largest economies, causing cancellations of
40,000 seats on All Nippon Airways (9202) flights, while Toyota Motor
Corp. (7203) and Nissan Motor Co. (7201) are cutting production in China.

China’s economy is poised for its weakest annual expansion
in 22 years. The 17-nation euro economy is on the brink of
recession after contracting 0.2 percent in the second quarter.
Economic confidence in the euro area unexpectedly fell last
month as leaders tried to rein in the debt crisis.

Large manufacturers will probably stay pessimistic in this
quarter, today’s report showed, with the outlook index for
December also at minus 3. Japan’s industrial production is
expected to slide again in September, the government said last
week.

Automakers Pressured

The sentiment index for automakers fell to 19 in September
from 32 in June, the Tankan survey showed, as government car
subsidies run out and anti-Japan sentiment flares up in China.
The outlook index for December was seen falling to minus 5.

“Companies are becoming more concerned about the outlook
for the economy and their businesses,” said Yoshimasa Maruyama,
chief economist at Itochu Corp. in Tokyo. “Some of them may
start to consider postponing planned business investment for
this fiscal year.”

The Bank of Japan on Sept. 19 followed the government in
downgrading its assessment of the domestic economy, saying
growth has “come to a pause.” The economy expanded an
annualized 0.1 percent in the quarter through September,
according to a median forecast of economists surveyed by
Bloomberg News. Morgan Stanley & Co. and Citigroup Inc. expect
the economy to contract in the two quarters through December.

Strong Yen

The yen was trading at 77.93 per dollar at 10:54 a.m. in
Tokyo, less than 4 percent from last year’s postwar high of
75.35 per dollar. The strong yen makes exports more expensive
and reduces the value of repatriated earnings. Sony Corp. (6758),
Japan’s largest electronics exporter, cut its annual profit
forecast 33 percent in August, and was downgraded by Standard &
Poor’s last month to two levels above junk.

Large manufacturers forecast on average that the yen will
trade at 79.06 per dollar in the year through March 2013,
according to today’s report.

Japan’s core consumer prices fell 0.3 percent in August
from a year earlier, a report last week showed, matching the
steepest decline in 16 months. That compares with a Bank of
Japan forecast for a 0.2 percent increase in prices in the
fiscal year that started in April and a 0.7 percent gain in the
following 12 months.

BOJ Easing

Lawmakers such as Shinzo Abe, a former prime minister who
was elected as leader of the main opposition Liberal Democratic
Party last week, are pushing for the BOJ to increase stimulus
after it unexpectedly added 10 trillion yen ($128 billion) to
its asset-purchase program last month.

Political gridlock also threatens to curtail the
government’s ability to apply fiscal stimulus. The government
could hit a spending ceiling after opposition parties in August
did not approve legislation that enables the issuance of 38.3
trillion yen of deficit financing bonds.

Large companies plan to increase capital spending 6.4
percent this fiscal year, today’s Tankan showed, up by 0.2 of a
percentage point from the June survey.

The Tankan confidence index for large non-manufacturers was
at 8 in September, with the outlook index seen at 5 in December.
Small manufacturers and non-manufacturers are also expected to
become more pessimistic in December, the report showed.

The BOJ surveyed 10,722 companies from Aug. 28 to Sept. 28,
with a 99.1 percent response rate.

To contact the reporters on this story:
Andy Sharp in Tokyo at
asharp5@bloomberg.net;
Keiko Ujikane in Tokyo at
kujikane@bloomberg.net

To contact the editor responsible for this story:
Paul Panckhurst at
ppanckhurst@bloomberg.net