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TOKYO: Japan’s top executives are the gloomiest in four years due
to a surging yen, high oil prices and a weaker global economy, the
central bank said Tuesday, raising fears of a looming recession.
With a record-breaking profit streak for
corporate Japan expected to come to an end this year, many companies
are looking to scale down spending on new equipment and factories,
the Bank of Japan’s Tankan survey showed.
Confidence among major manufacturers tumbled to
11 in March from 19 in December, slightly worse than market
forecasts for a figure of 12, according to the poll, which covers a
total of more than 10,000 companies.
“Corporates are becoming increasingly cautious
given rising cost pressure, the rapid yen appreciation, and the
deteriorating outlook for the global economy,” noted Lehman
Brothers economist, Hiroshi Shiraishi.
It was the second straight quarterly decline,
pushing sentiment down to the worst level since December 2003.
Japan’s corporate sector has been a key driver
of the recovery in the world’s second largest economy after a
decade-long slump.
Helped by a weak yen and brisk exports,
companies have racked up record earnings in recent years and
invested heavily in new equipment and factories.
But many firms are now looking to scale down
capital spending to cope with an expected drop in earnings, raising
fears Japan’s recovery could stall temporarily.
“The outlook for the Japanese economy and
growth through the first half of the year is clearly at risk now,”
said Glenn Maguire, chief economist for Asia at Societe Generale in
Hong Kong.
“It looks inevitable that the economy will
experience a mild recession,” he said, predicting that worsening
conditions could prompt the BoJ to cut its interest rates, which
have been on hold at 0.5 percent for more than one year.
Two key drivers of Japanese growth—exports and
business investments—were faltering, but the recession should be
quite shallow because companies are in better shape than during
previous slowdowns, Maguire said.
Highlighting the gloomy outlook, top
manufacturers predicted a further deterioration in the headline
index to seven in June.
The confidence index for large non-manufacturers
also dropped in March to 12 from 16 in December.
The indices represent the percentage of firms
experiencing favorable business conditions minus the percentage of
those seeing unfavorable conditions.
Large manufacturers and non-manufacturers plan
to cut their capital spending by 1.6 percent in the new fiscal year
that began on Tuesday, while firms of all sizes and industries
anticipate a reduction of 5.3 percent, the survey showed.
The combined current profit of all the companies
is expected to rise by 2.4 percent in the fiscal year to March 2009,
after a 1.6 percent drop in the previous year, the Bank of Japan
reported.
Analysts said that companies may still be overly
optimistic about the earnings outlook given their expectations for
the yen.
Large manufacturers expect the dollar exchange
rate to average 109.21 yen over the fiscal year to March 2009,
against the current rate of about 100 yen.
“Given the gap between these levels, corporate
profits are likely to be revised down going forward,” predicted
Barclays Capital economist Yuichiro Nagai.
He noted that companies in the key auto industry
were forecasting a significant deterioration in business conditions.
“Japan’s economic growth has been fuelled by
exports for the past two quarters and such an outlook among
exporters raises serious concerns about Japan’s export trend going
forward,” Nagai noted.
Hiroko Ota, Japan’s economic and fiscal policy
minister, noted that the fall in confidence was particularly evident
among manufacturers.
She said the government would “monitor the
impact of the appreciation of the yen and a surge in raw material
prices.”
-- AFP
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