Quake-Hit Kumamoto Already Faced Waning Business Sentiment

  • Travelers drawn to region for famous mascot, castle, Mt. Aso
  • Outlook for retailers, hotels and restaurants has been falling

The Kumamoto region of Japan that was struck by a deadly earthquake overnight was already facing a downturn in business sentiment, including in the tourist industry, according to data from the central bank.

Map of Japan
Map of Japan
Bloomberg

The Bank of Japan’s Kumamoto branch office this month reported in its local Tankan survey that confidence among the area’s companies is likely to slump over the next few months, with pessimists set to outnumber optimists. The index will drop to minus 1 in June from 7 in March. Zero marks an even split on views.

Tourism is an important source of revenue for the prefecture, which draws travelers from home and abroad with its Kumamon mascot, a famous castle and Mt. Aso, one of the largest active volcanoes in the country. The castle’s stone walls were reportedly damaged by the 6.5 earthquake, which struck at 9:26 p.m. local time Thursday.

At least nine people were killed and hundreds injured in the quake, which caused the strongest shaking since the 2011 disaster.

Collapsed buildings after an earthquake struck Kumamoto, Japan.
Collapsed buildings after an earthquake struck Kumamoto, Japan.
Photographer: The Asahi Shimbun via Getty Images

Kumamoto’s economic output accounts for 1.1 percent of Japan’s gross domestic product, according to Cabinet Office data. This is less than 3.7 percent for Hyogo prefecture, where a huge earthquake struck in January 1995, and 6.2 percent for the combined four northern prefectures affected most by the March 2011 quake and tsunami.

The manufacturing sector is a smaller part of the economy in Kumamoto than it is in Hyogo, Ibaraki or Fukushima, according to a report written by economists Kyohei Morita and Yuichiro Nagai at Barclays in Tokyo. Compared with the areas hit by the 1995 and 2011 temblors, it appears there are fewer industrial linkages that will hurt other regions, they said.

The Kumamoto’s Tankan outlook for hotels and restaurants is forecast to decline to -11 in June, from zero in March, while for retailers the forecast drop is to 5 from 20.

The tertiary sector, which includes the retail and services industries, accounts for more than 70 percent of Kumamoto’s economic output, according to the prefectural government.

Asian Tourists

South Koreans accounted for the largest number of foreign visitors to Kumamoto in 2014, followed by people from Taiwan, Hong Kong and China, according to a report from the prefectural government.

“Japan’s economy has weak growth momentum and remains in a fragile state with the absence of a powerful and sustained engine for growth,” said Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo. “Any unexpected powerful shock could push the nation into a recessionary phase.”

A slowdown in emerging nations worsened manufacturers’ confidence, the biggest factor in March’s drop. Non-manufacturers’ sentiment led the decline in the June forecast, according the local BOJ branch.

The weak outlook figures for services could reflect concerns that inbound tourism will slow amid weakness in emerging economies, according to Mizuho Securities’ Ueno. With the earthquake, business confidence in Kumamoto may get even worse, he said.

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