Big Japanese manufacturers are the most pessimistic in almost three years after a diplomatic dispute with China and Europe’s austerity measures dragged exports to a fifth monthly decline in October.
The quarterly Tankan index for large manufacturers fell to minus 12 in December from minus 3 in September, the Bank of Japan said in Tokyo today, a fifth straight negative reading and the lowest since March 2010. The median estimate of 25 economists surveyed by Bloomberg News was for minus 10. A negative figure means pessimists outnumber optimists.
The slide in sentiment gives the central bank an extra reason to ease policy on Dec. 20 after the Federal Reserve moved this week. JPMorgan Chase & Co. sees a 10-trillion yen ($120 billion) expansion of an asset-purchase program and the pressure for further loosening is likely to mount if opposition leader Shinzo Abe’s party wins an election in two days’ time.
“The focus is on whether the economy will show any improvement after the election,” said Hideo Kumano, chief economist at Daiichi Life Research Institute who correctly predicted today’s reading. “Given that exporters’ confidence has weakened so much, calls for a cheaper yen will mount.”
At the next BOJ policy meeting, officials will also consider an extension of currency-swap arrangements involving the Fed, European Central Bank, and the central banks of Canada, England and Switzerland, the Japanese central bank said last night.
The yen fell to a nine-month low against the dollar as investors assess the possibility of more monetary stimulus if Abe’s Liberal Democratic Party retakes power. The currency was trading at 83.73 per dollar at 11:21 a.m., the lowest level since March 21. The Nikkei 225 Stock Average fell 0.2 percent, breaking a two-day advance.
“If the BOJ opts to leave its monetary policy unchanged,” the yen could move back into the 70s against the dollar, Takuji Aida, Tokyo-based senior economist at UBS AG, wrote in a report before the Tankan release.
A weaker yen reduces the price of Japanese products in overseas markets and increases the value of repatriated earnings for companies including Toyota Motor Corp.
Large manufacturers will probably grow less pessimistic next quarter, with the outlook index in today’s Tankan at minus 10. Large companies from all industries plan to increase capital spending 6.8 percent in the fiscal year through March 2013, up 0.4 percentage point from the September survey.
Japan’s gross domestic product shrank an annualized 3.5 percent last quarter after a 0.1 percent decline in the previous three-month period, meeting the textbook definition of a recession. The territorial dispute with China is contributing to Japan’s worst year for exports since the global recession in 2009.
Shipments fell 6.5 percent from a year earlier in October, the fifth monthly decline. Exports to the European Union have fallen every month since October 2011, as the region’s economy fell into the second recession in four years last quarter.
Toyota’s sales in China fell 22 percent from a year earlier in November, after a 44 percent drop in October and a 49 percent decline in September, the biggest monthly drop in a decade.
Automakers turned pessimistic in December, today’s Tankan showed, after government car subsidies ended. The industry’s sentiment index fell to minus 9 in December, the lowest since June 2011, from 19 in September. Sentiment is seen worsening to minus 16 in the next survey.
Sony Corp., Panasonic Corp. and Sharp Corp. have announced a total of more than 29,800 job cuts for the year ending March 31, while the government is poised to bail out chipmaker Renesas Electronics Corp.
While sentiment remains weak, rising machinery orders and production in October suggest that economic conditions may be improving. The weakening yen and signs of a pick-up in the U.S. may help to boost corporate sentiment as Abe pledges “large-scale” spending.
“The recession will be short and shallow,” Junko Nishioka, chief economist at RBS Securities Japan Ltd, said before the report.
The economy will shrink 0.4 percent in the fourth quarter before growing 1.4 percent in the first three months of 2013, according to economists surveyed by Bloomberg News.
The Fed on Dec. 12 said it would expand its asset-purchase program by buying $45 billion a month of Treasury securities starting in January, and for the first time linked the outlook for its main interest rate to unemployment and inflation.
Large manufacturers forecast on average that the yen will trade at 78.90 per dollar in the fiscal year through March, according to today’s report.
The BOJ surveyed 10,654 companies from Nov. 13 to Dec. 13, with a 99.3 percent response rate.