• Kyodo

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Despite its report this week saying the economy may be contracting, there is not much the government can do with limited funding resources, causing citizens to further tighten their belts.

The Cabinet Office on Tuesday revised downward its assessment of the coincident activity index for September to “signaling a possible turning point” toward contraction.

The downswing appears to stem chiefly from two fronts, one external and one internal: slumping exports on weak activity overseas, including the key market of China amid the bitter Senkakus territorial row, and stifled consumer spending domestically on anxiety about increased tax and other financial burdens.

“I feel the economic crisis in my bones,” a 59-year-old housewife from Yokohama said at a consumer electronics shop in Tokyo on Tuesday evening. “At supermarkets, I check the fliers from top to bottom to buy discount merchandise.”

Supermarkets reported year-on-year drops in sales for the seventh straight month through September. Overshadowing them is concern among shoppers about expected increases in their expenditures, such as hikes in electricity bills and the sales tax hike slated in April 2014.

These factors are compounded by general anxiety among the public about the future of the social security system.

“Consumers are getting increasingly wary of the need to protect their livelihood,” said an official at the Japan Chain Stores Association.

Against this backdrop, major retailer Aeon Co. has marked down the prices of 1,000 products since summer, while Daiei Inc. and Seiyu GK, a unit of Wal-Mart Stores Inc., have also come up with across-the-board cuts in foods and general merchandize. To stimulate consumer demand, the retail industry appears to have moved into a war of attrition even at the expense of securing profit margins.

Skidding sales of TV sets, which have dragged down the earnings of domestic electronics makers, also are not seen rebounding anytime soon.

Major electronics retailer K’s Holdings Corp.’s CEO, Shuichi Kato, is pessimistic about the near term, saying the impact “will continue for at least seven to eight years.”

Asked about the Cabinet Office’s downgrade of its assessment, economic and fiscal policy minister Seiji Maehara said: “A judgment must be made based on various indicators and data. We cannot say the economy is in a downturn based only on what one of them showed.”

The government will wait for experts to scrutinize the data before officially acknowledging when the downturn began. Nonetheless, a senior official at the Cabinet Office expressed concern that slumps in production and exports could have wider repercussions on the economy through declines in payrolls and wages. The official pointed out that the latest data “deeply reflected the weakness of the manufacturing industry.”

The biggest concern is China, Japan’s largest trading partner. Nissan Motor Co. on Tuesday sharply cut its full-year earnings estimates through March 2013. Noting the Chinese market risks, Chief Operating Officer Toshiyuki Shiga said that “if the fallout from China and the strong yen is prolonged and production consequently drops, it will have a major impact on the economy.”

Ryutaro Kono, chief economist at BNP Paribas Securities (Japan) Ltd., also warned about the outlook for Chinese growth.

“China is in the midst of transition after experiencing more than 10 years of export and investment booms. A rapid recovery in demand doesn’t appear forthcoming,” Kono warned.

It also remains unknown how long Chinese consumers’ aversion to Japanese products stemming from competing territorial claims over the Senkaku Islands in the East China Sea will last.

The Cabinet approved a package of “emergency” spending measures to spur the economy Oct. 26. But stalemate between the ruling and opposition camps has delayed the enactment of a bill for the issuance of deficit-covering bonds, limiting the funds available to a maximum ¥422.6 billion, drawn chiefly from reserve funds appropriated in the fiscal 2012 budget.

The stimulus package is expected to have limited impact on the economy, adding only 0.1 percentage point to the inflation-adjusted expansion of gross domestic product, and business leaders doubt it will fuel new momentum.

“We can’t really say it is sufficient in size to prevent the economy from faltering,” said Yasuchika Hasegawa, chairman of the Japan Association of Corporate Executives (Keizai Doyukai).

The government is hoping to decide on a second stimulus package by the end of November. However, it appears that a supplementary budget for fiscal 2012 to fund full-scale stimulus steps will be introduced only in the next ordinary session of the Diet, set to convene in the new year.

On Tuesday, Maehara blamed opposition lawmakers for what he sees as an uncooperative attitude in working out adequate stimulus measures. “Economic stimulus measures will rapidly be introduced if we are allowed to execute the budget,” he said.

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