Japanese business pessimism grows

Japanese businesses confidence has turned overwhelmingly negative for the first time in five years just as consumer sentiment hits an 11-year low, according to quarterly surveys published yesterday by the Bank of Japan.

The widely watched BoJ surveys highlight the damage to the world’s second largest economy caused by the global financial crisis and a political gridlock that has forced the resignations of two prime ministers in a year.

The Tankan survey for the three months to September showed that sentiment among large manufacturers deteriorated for the fourth quarter in a row, turning negative for the first time since 2003.

Sentiment among large non-manufacturing companies, small manufacturers and small non-manufacturers was equally depressed, with the index for each group also showing the worst reading since 2003.

Meanwhile the consumer sentiment diffusion index fell to minus 80.4 in September, the lowest since March 1996. It stood at minus 67.3 in the last survey in June. The BoJ subtracts the number of consumers who say economic conditions are worse than they were a year ago from those who say they have improved.

The deterioration in business and consumer sentiment comes as newly appointed Liberal Democrat party Prime Minister Taro Aso battles a resurgent opposition Democratic party over the details of an emergency economic stimulus package.

Mr Aso, who last week became Japan’s fourth prime minister in just over two years, has made economic recovery his priority but faces the same gridlock in parliament that forced his predecessors Yasuo Fukuda and Shinzo Abe out of office.

“The deterioration in sentiment among manufacturers was expected, due to the slump in exports, but [it is significant that] the outlook among non-manufacturers worsened as much as that among manufacturers,” said Naoki Murakami, chief economist at Monex, the internet broker.

Mr Murakami said the BoJ would seek to blame the impact on overseas demand of the global credit crunch for the slowdown in Japan’s export-driven economy, but the deterioration in confidence among non-manufacturers demonstrated that weak domestic demand was having widespread effects.

Business confidence has also been affected by a slew of bankruptcies in the construction and real estate sectors, with the latter also suffering from a severe credit crunch, partly due to regulatory moves.

Japan recorded a contraction in gross domestic product in the second quarter, and in August monthly figures showed that industrial production had fallen by 6.9 per cent year-on-year while unemployment rose to 4.2 per cent. Although the economy is not technically in recession, the government has officially changed its assessment of the economy to “deteriorating”.

In a further sign of the weakness of the economy, the Japan Automobile Dealers Association said yesterday that car sales in the first half of the year fell to the lowest in 34 years as rising unemployment and decade-high inflation reduced demand.

The fall in business sentiment came as wages fell for the first time in 8 months, mainly due to a decline in summer bonuses and consumer sentiment deteriorated to the lowest level since 1996.

Analysts expect the situation to worsen as the US economy slumps and weak domestic demand persists. Some insist that Japan is already in recession, even though the technical definition of two successive quarters of negative economic growth will not have been met until the publication of third quarter figures.