Nearly 90 percent of 101 major Japanese companies expect economic expansion in 2016, with many projecting private consumption and capital spending to recover from their 2015 doldrums, a Kyodo News poll found Saturday.
After a slowdown in the Chinese economy rattled financial markets last year, more than a majority, or 54, said their business performance will be impacted by the slowing Asian powerhouse.
According to the poll, conducted in December, 88 expect the Japanese economy to expand in the year ahead. Of those, two projected a strong growth and 86 a moderate expansion. Nine forecast a leveling off, while one expected growth to slow moderately. None projected a contraction.
Asked why they think the economy will grow, 63 companies picked recovery in private consumption as a major factor, followed by 45 who cited a pickup in capital expenditure.
The government of Prime Minister Shinzo Abe has been trying to put the world’s third-largest economy on a sustainable recovery path, urging companies to increase capital spending and wages. Wage growth that outpaces inflation is vital for consumption to gain momentum.
The Bank of Japan, for its part, decided last year to launch a new program to buy a reportedly yet-to-be-created type of exchange-traded fund consisting of stocks issued by companies who are “proactively making investment in physical and human capital.”
Still, 71 companies did not clarify their stance on pay hikes for this spring’s annual wage negotiations with labor unions. Only 13 said they plan to increase wages.
The survey found that 64 firms, or more than 60 percent, see the recently sealed Trans-Pacific Partnership trade pact as beneficial to earnings. Japan’s sheltered farmers, however, are worried the giant free trade agreement will hurt them by flooding Japan with cheap agricultural imports.
Abe said last year his deflation-busting “Abenomics” economic program has entered its second stage. He set a goal of raising Japan’s nominal gross domestic product to ¥600 trillion ($5 trillion) by around 2020 with more focus on welfare services.
A total of 66 companies expressed support for Abe’s new policy targets, while 21 said they neither support nor oppose it and three said they do not back it.
2016 is expected to be crucial for the economy as Japan braces for another consumption tax hike in 2017 that would complete its doubling to 10 percent. Food items, expect for restaurant meals, will be exempt. The tax rate currently stands at 8 percent.
Only 19 companies said they support the lower tax rate for food, and 28 said they are opposed. Many are concerned the hike will put a heavier workload on businesses and are concerned the resulting drop in tax revenue will lead to cuts in social security expenses.
Asked about the outlook for earnings in the business year through March, 57 companies projected earnings to improve on a net basis compared with the previous year, while 23 expected a fall in group net profit or a loss.
The yen’s weakness against other major currencies has helped Japanese companies, especially export-oriented firms, reap record profits.