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TOKYO: Top Japanese executives are at their most pessimistic in
almost five years as soaring costs, a slowing global economy and a
stronger yen pile pressure on profits, the central bank said
Tuesday.
Corporate Japan’s earnings are expected to
drop this year, making managers reluctant to boost investment in new
plants and factories, the results of the Bank of Japan’s (BoJ)
closely watched Tankan survey showed.
Confidence among major manufacturers tumbled to
five in June from 11 in March, according to the survey of more than
10,000 companies. Market forecasts had been for a figure of four.
It was the third straight quarterly decline,
pushing sentiment down to the worst level since September 2003. The
index measures the percentage of firms that think business
conditions are good minus those that think they are bad.
The plunge reinforced market expectations that
the BoJ will leave its super-low interest rates on hold at 0.5
percent for the foreseeable future despite the fastest inflation in
a decade in Japan.
“The impact of surging raw material prices and
a US economic slowdown is clearly reflected” in the survey
results, Economic and Fiscal Policy Minister Hiroko Ota told a news
conference.
Japan’s corporate sector has been a major
driving force of a recovery in the world’s second-largest economy
after years in the deflation doldrums.
Helped by a weak yen and brisk exports,
companies have enjoyed record earnings in recent years and expanded
their global production facilities.
But firms are growing more cautious about
ramping up spending on new plants and equipment due to soaring raw
material costs and a weaker global economy, raising fears Japan’s
economic recovery could stall temporarily.
The combined pretax profit before extraordinary
items of all the companies is expected to drop by 4.4 percent in the
current fiscal year to March.
“Earnings look vulnerable to downward
revision” as exports to emerging economies cool, warned Morgan
Stanley economist Takehiro Sato.
Firms of all sizes and industries plan on
average to reduce their capital spending by 1.4 percent this fiscal
year.
The survey “doesn’t suggest that capital
expenditure is going to collapse,” said Lehman Brothers economist
Hiroshi Shiraishi, who thinks the Japanese economy still looks
likely to escape a severe downturn.
But recent developments “are fairly worrying
given the continuing pick up in oil prices and the deteriorating
outlook for the US economy,” he said.
Big manufacturers predicted a further
deterioration in the headline sentiment index to a figure of four in
September.
Confidence has fallen sharply from a two-year
high of 25 seen in December 2006, but it is still much higher than a
low of minus 38 struck six years ago.
Sentiment among big non-manufacturers slipped to
10 in June from 12 in March, with confidence among small and
mid-sized firms also worsening.
Japan’s economy is on the mend after a slump
stretching back more than a decade, but sluggish consumer spending
has raised concern that the country’s export-led recovery is
vulnerable to the global economic slowdown.
“The next stage seems to be that falling
profits will start to have an impact on domestic demand” as
companies pay smaller bonuses to workers, resulting in weaker
consumer spending, Shiraishi said.
-- AFP
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