Manufacturers are increasingly nervous, the latest “tankan” quarterly report showed Monday, as sagging demand at home and abroad is being compounded by fears over the effects of the nasty territorial row with China.
The Bank of Japan’s survey found sentiment among big manufacturers fell to minus 3 in September from minus 1 in June.
The figures represent the percentage of firms saying business conditions are good minus those saying they are bad, and are a key measure used by the BOJ in formulating monetary policy.
Kyohei Morita, chief economist at Barclays Capital, said the latest tankan “shows that foreign demand is weak.”
“Previous data have shown exports were weaker than expected and domestic consumer spending was recovering slower than expected . . . but the latest tankan points to weak foreign demand,” he said.
“Toward the end of the year, attention should be paid to how China and other overseas economies will be faring as well as how resilient the domestic economy will be,” he said.
The automobile sector was hit by the end of government incentives for consumers to buy energy-saving cars in late September, but there still is demand for reconstruction from the 2011 earthquake and tsunami disasters, Morita said.
Economists expect the economy to have contracted in the July-September quarter but are divided over whether it will sink further this quarter.
Morita said he is expecting a little growth in October-December, while Masahiko Hashimoto, an economist at Daiwa Institute of Research, said the risk of two consecutive quarters of contraction — a recession — is growing.
“Given that the economy is believed to have contracted in July-September, the risk is growing that (Japan is entering) a recession unless overseas economies pick up,” he said.
European economies are struggling amid the continent’s debt problems while the Chinese economy is slowing down despite relatively solid demand from the United States.
Economists said any possible impact from the territorial dispute with China was not fully reflected in the September survey, with a majority of companies polled giving answers well ahead of the deadline last Friday.
“If the problem persists there may be additional negative impact on the sentiment of automakers, electrical machinery companies and some retailers and wholesalers” in the next survey, said Morita of Barclays.
Businesses have taken a hit from the flareup in the row between Tokyo and Beijing over ownership of the Senkaku Islands. When protests broke out in China last month, major Japanese firms were forced to close factories temporarily.