Thursday, September 27, 2012

Japan’s Confidence Poised to Weaken in Warning for BOJ: Economy

Japan’s biggest manufacturers probably grew more pessimistic this quarter as China’s slowdown and Europe’s crisis sapped exports, putting pressure on the central bank to add to this month’s surprise monetary stimulus.


The Bank of Japan (8301)’s Tankan report will show Oct. 1 that its measure of business confidence deteriorated to -4, the fourth straight quarter that pessimists outnumbered optimists, according to the median of 12 estimates in a Bloomberg News survey.

That would mark the longest string of negative readings since Japan emerged from the global recession in mid-2010.

The report may add to risks of the world’s third-largest economy slipping into a contraction in the second half of the year, offering little prospect of the BOJ quelling the nation’s deflation.

A separate release in two days may show consumer prices slumped 0.3 percent in August from a year before, compared with the BOJ’s target of 1 percent inflation.

“Companies are judging it’s not the time to invest because of uncertainties over the global economy,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management in Tokyo.

“The BOJ should expand its asset purchases this year because they are far from their inflation target and will come under increased pressure from the government to ease further.”

BOJ Governor Masaaki Shirakawa and his colleagues gather twice to set policy next month, on Oct. 4-5 and Oct. 30.

Last week, they added 10 trillion yen ($129 billion) to their asset- purchase plan, the main policy tool since the benchmark interest rates was cut near zero.

‘Bold Steps’

Deputy Governor Hirohide Yamaguchi said this week that “we will take flexible and bold steps if we judge our policy is insufficient to achieve our policy goal.” Board members will release updated projections for the economy at the second of next month’s meetings.

Sumitomo’s Muto said the BOJ will probably revise down its consumer-price forecasts. The likely deterioration in manufacturers’ confidence this quarter coincides with sustained strength in the nation’s currency, which has eroded export competitiveness.

The yen traded at 77.65 per dollar at 6:10 p.m. in Tokyo, up 2 percent since the BOJ added stimulus on Sept. 19. The currency is about 3 percent from the postwar high reached in October 2011. The Nikkei 225 Stock Average closed down 2 percent.

Shinzo Abe

The main opposition party’s selection of former premier Shinzo Abe as its leader today may increase pressure on the bank. Earlier this month Abe called for the BOJ to set a 3 percent inflation target, and he has said “drastic monetary policy measures” are needed to beat deflation.

Sharp Corp. plans to cut more than 10,000 jobs, or about 18 percent of its workforce, as the Japanese TV maker tries to return to profit, two people with knowledge of the proposal said.

Sony Corp. (6758), Japan’s biggest consumer electronics exporter, yesterday had its credit rating lowered by Standard & Poor’s for the second time this year because of concern over the company’s earnings outlook.

The Tokyo-based company cut its annual profit forecast by 33 percent last month. China’s slowdown is also hurting Japan, Hitachi Construction Machinery Co. (6305), the world’s No. 3 maker of building equipment, saying last month it would shut its Chinese plant for two weeks a month until October as sales there slump.

Japan’s largest export customer has seen its economic growth slow for six straight quarters.

Dropping Production

Japanese carmakers cut China production plans on concerns about the economic fallout from a territorial dispute between Asia’s two biggest economies.

Nissan Motor Co. (7201), the top Japanese seller of vehicles in China, said today its output in the country fell 8.9 percent in August, while Toyota Motor Corp. (7203)’s dropped 18 percent.

Japan also reports on August inflation, industrial output, retail sales and unemployment in two days.

Consumer prices excluding fresh food fell for a fourth straight month, a Bloomberg survey of 26 economists shows.

The projected 0.3 percent drop compares with the BOJ’s prediction of a 0.7 percent increase over the year starting April 2013. Sales at retailers are seen falling for the fifth time in six months.

Industrial production probably fell 0.5 percent on month, the second straight decline, according to a separate survey.

Next week’s Tankan may show little respite for Japan’s factories for the rest of the year, with the outlook for large manufacturers in the December Tankan estimated to be -5.

Asia Slowing

Economies across Asia are showing the impact of a slowing global rebound, with Singapore today reporting that industrial output fell 2.2 percent on year in August, from 1.9 percent in July.

New Zealand reported that exports fell and imports rose in August. One bright spot emerging in the global economy is a stabilization of the U.S. housing market.

The Commerce Department will probably report that new-home sales in August rose to the highest rate since April 2010, according to a survey. In Europe, the Confederation of British Industry will release an index of U.K. retail sales for September.

France’s consumer confidence probably slipped in September from the previous month and German inflation may have moderated to 2.1 percent in September from a year earlier, Bloomberg surveys showed.

Falling Growth

Japan’s central bank will have to cut its growth forecast for the current fiscal year, and will have difficulty achieving its 1 percent inflation target by the year ending in March 2015, said Kiichi Murashima, chief economist at Citigroup Global Markets Japan Inc.

“It makes sense for the BOJ to expand its asset-purchase program further at the Oct. 30 board meeting,” probably by 5 trillion yen, he said.

Even with further stimulus, the BOJ may struggle to end declines in prices, as the nation is in a ’deflation trap,’ according to Nobuyasu Atago, a principal economist at the Japan Center for Economic Research and a former central bank official.

“Even if the BOJ buys 80 trillion yen worth of Japanese government bonds, companies won’t raise their prices,” Atago said in an interview last week.

“It’s a vicious cycle, with rising input prices and the cost of quality improvements paid for by squeezing wages, which drives down consumption and makes it harder to raise prices.”

bloomberg.com

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