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December 14, 2012 2:18 am
Japanese large manufacturers are the most pessimistic they have been since March 2010, underlining the scale of the challenge facing Shinzo Abe, who is poised to become prime minister after Sunday’s election.
The Bank of Japan’s quarterly Tankan report, released on Friday, showed that the key measure of business confidence among big manufacturers fell to minus 12, from minus 3 in September. It marked the fifth straight quarter that pessimists outnumbered optimists.
Manufacturers are facing a strong yen compounded with the effects of China’s slowdown and weakness in Europe.
The survey, carried out over the 30 days leading up to December 13, shows that spirits have sunk further than in June last year, after Japan experienced the triple disasters of an earthquake, tsunami and a nuclear meltdown.
Just 8 per cent of large manufacturers – defined as having equity capital of more than Y1bn ($12m) – said current business conditions were “favourable”, from 11 per cent in September.
The mood underscores the risk that the recession-hit Japanese economy will contract for a third consecutive quarter in the three months through December.
The fortunes of Japan’s car and electronics manufacturers have a powerful effect on the economy, as smaller profits spark lower hiring and capital spending.
Kyohei Morita, chief economist at Barclays in Tokyo, said Mr Abe’s Liberal Democratic party could use the data to argue that “the government has failed to put Japan on to a continued recovery path”.
The LDP and its alliance partner, New Komeito, are heading for an overwhelming victory over Prime Minister Yoshihiko Noda’s Democratic party in the election, according to the latest survey of voters by the Nikkei newspaper.
Mr Abe has pledged to reignite growth by urging the BoJ to pursue “unlimited” monetary easing to achieve an inflation target of 2 per cent – double the bank’s current goal – while launching a fresh round of fiscal stimulus early next year.
Analysts said the latest Tankan survey – which the central bank considers when formulating monetary policy – will increase expectations of further loosening next Thursday, after the BoJ’s board meeting.
Although the yen has weakened in recent weeks, spurred by Mr Abe’s talk of aggressive easing, large manufacturers said they expected the Japanese currency to average 78.73 to the US dollar in the six months through March 2013.
That represents a slight strengthening from the last Tankan estimate in September, and implies a sharp rise from Friday’s spot price of about 83.7 to the greenback.
Last week, Kiyohiko Nishimura, the BoJ deputy governor, said the bank was ready to take “appropriate and decisive action” if the economy remained sluggish.
“A status quo could fuel political pressure on the BoJ,” said Kohei Iwahara, a Hong Kong-based economist at Natixis, the French investment bank.
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