Eye on the economy - Japan

Producers' confidence at 3-year low

While there were still more upbeat Japanese producers than pessimistic ones, confidence has been on a steady decline.
While there were still more upbeat Japanese producers than pessimistic ones, confidence has been on a steady decline.PHOTO: REUTERS

China surprised analysts with its improved manufacturing data, Europe was chilly while the United States resumed growth, as countries from Asia to America released their March purchasing managers' index, figures that reflect a nation's economic health

TOKYO • Confidence among Japan's biggest manufacturers dropped last quarter to its lowest level since Prime Minister Shinzo Abe kicked off his much-vaunted programme to boost growth three years ago.

The poor reading on the Bank of Japan's (BOJ) closely watched Tankan report, released yesterday, will heap pressure on policymakers to unveil more stimulus, as evidence of a slowdown in the world's No. 3 economy piles up.

The report showed that sentiment among major manufacturers came in at plus six last month, weaker than market expectations and way down from a plus 12 reading in the previous quarter.

The survey of more than 10,000 companies is the most comprehensive indicator of how Japan Inc is faring, and marks the difference between the percentage of firms that are upbeat and those that see conditions as unfavourable.

While there were still more upbeat producers than pessimistic ones, confidence has been on a steady decline owing to fears about China's economy and weak global growth.

Sentiment in the boardrooms of large non-manufacturing companies also fell, while big firms across a swathe of industries plan to cut capital spending, in a reflection of an economy that is losing steam.

"The pronounced drop in the headline index of today's Tankan survey underlines that the recent strengthening of the yen has damaged business confidence and suggests that the Bank of Japan will announce more easing later this month," research house Capital Economics said in a commentary.

The BoJ launched an unprecedented monetary easing plan in early April 2013, a cornerstone of Mr Abe's plan to end years of the deflation that held back growth in the once-powerhouse economy.

"(The Tankan) doesn't look very good - it's become clear that the economy is weakening," said Mr Kohei Iwahara, director of economic research at Natixis Japan Securities. "We need a policy response, but the question is what."

In January, the bank shocked markets with a move to negative interest rates, effectively charging banks to store their excess reserves in the BoJ's vaults.

The move is aimed at stimulating lending to help kick-start the economy, but it was widely panned as a desperate bid to shore up Tokyo's faltering growth push.

AGENCE FRANCE-PRESSE

A version of this article appeared in the print edition of The Straits Times on April 02, 2016, with the headline 'Producers' confidence at 3-year low '. Print Edition | Subscribe