• Bloomberg


Confidence among large manufacturers declined in the fourth quarter as the recession offset a boost from the weaker yen, the Bank of Japan’s “tankan” survey showed Monday, underlining the economic challenges for Prime Minister Shinzo Abe after his electoral victory.

The tankan index of major manufacturers slipped to 12 in December from 13 in the previous quarter, lower than the median estimate of 13 in a Bloomberg News survey of economists. The index is forecast to drop to 9 when the next quarter’s data are released in March.

The recession and an election victory that heaps pressure on Abe to deliver on promised growth-boosting reforms are raising the stakes for his efforts to revive the world’s third-biggest, yet long-dormant, economy.

Burdened by debt, the administration is counting on companies to increase investment and wages to fuel a recovery.

“Companies are still cautious,” said Kiichi Murashima, an economist at Citigroup Inc. “I doubt capital investment will be implemented as planned, as companies are still not expecting strong growth in the economy. Implementing policies to boost growth will be an important task for Abe’s government.”

Sentiment among large nonmanufacturers rose to 16 from 13. Across all industries, big businesses plan to boost capital expenditure by 8.9 percent this fiscal year through March, compared with plans for an 8.6 percent increase in the September tankan.

Large manufacturers based their plans on the assumption the yen would average 103.36 to the dollar in the current fiscal year. A weaker yen helps exporters by raising their competitiveness abroad and increasing the value of profits when repatriated. It also boosts costs for importers and squeezes households and domestically focused companies.

“Sentiment among companies will improve gradually,” Yoshiki Shinke, an economist at Dai-ichi Life Research Institute, said before the survey’s release. “For now, companies are weighing the boost from a weak yen and the stalled recovery.”

Consumption slumped in the wake of the consumption tax hike in April, to 8 percent from 5 percent, driving the economy into two consecutive quarters of contraction, the technical definition of a recession.

Abe last month postponed the next stage of the tax hike, to 10 percent, by 18 months to April 2017, prompting rating agencies to cut Japan’s debt rating or warn of possible downgrades.

The administration is considering an extra budget worth as much as ¥3 trillion to stimulate the economy, according to sources involved in the discussions.

The BOJ bolstered already record stimulus on Oct. 31, helping to accelerate the yen’s depreciation and boosting stocks to a seven-year high on the Nikkei stock average.

The yen has weakened 28 percent since Abe took office in December 2012 and the broader Topix stock index has surged about 65 percent.

Aggregate net income at 195 of the largest listed companies in the nation will expand 10 percent to a record ¥17.5 trillion this fiscal year, based on analyst estimates compiled by Bloomberg. Toyota Motor Corp. last month raised its profit forecast to a record ¥2 trillion.

“It’s important to deliver the benefit of economic growth to every level of Japanese society by ensuring a recovery trend,” Sadayuki Sakakibara, chairman of Keidanren, the country’s biggest business association, said Dec. 8. “We will work on creating a virtuous economic cycle through increasing employment and raising wages on the back of rising profits.”

Consumer sentiment fell for a fourth straight month in November, and households cut spending from year-earlier levels in every month from April through October, according to government data.

The tankan survey of 10,312 businesses was conducted by the BOJ from Nov. 12 to Dec. 12.

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