Weakness in the Japanese economy and the slowdown in Asit are chipping away at the nation’s business confidence, with the latest survey from the central bank showing sentiment among large manufacturers worsening. The Tankan index for large manufacturers fell to 12 in September from 15 in June, the Bank of Japan said on Thursday, lower than the median estimate of 13 in a Bloomberg survey of economists. The index is forecast to drop to 10 in December.
There’s growing concern that Japan’s economy may have contracted in the quarter that’s just ended, which would tip the nation into its second recession since Japanese Prime Minister Shinzo Abe took office in 2012. Large companies that have benefited from the weak yen and rising profits under Abe have yet to make a significant commitment to expanding domestic investment. Both Abe and Bank of Japan Governor Haruhiko Kuroda have said investment and wage growth is needed to keep the economy out of deflation and on a growth path.
“The Tankan results indicate that Japan’s outlook remains grim,” said Yuichi Kodama, an economist at Meiji Yasuda Life Insurance Co. in Tokyo. Kodama, who estimates the economy contracted by an annualized 0.9 percent last quarter, said large manufacturers are less confident about Japan’s outlook because exports are sluggish with the slowdown in China.
Kuroda this week urged companies to act quickly as wages and capital spending remain “lackluster.” Large companies have reported record profits as the weak yen boosts overseas income, and this is filling up in their coffers, instead of being invested in production at home or higher wages.
Large companies in a range of industries plan to increase capital expenditure by 10.9 percent in the fiscal year through March 2016. Despite bullish forecasts by companies, their investment actually dropped 0.9 percent in the second quarter from the first three months of the year, when there was a modest 2.6-percent gain, separate Cabinet Office data show.