Japan Tankan Signals Business Spending Cuts May Impede Recovery
Japan’s recovery from its worst postwar recession may lose momentum as companies cut investment and job losses undermine consumer spending.
The Bank of Japan’s quarterly Tankan report yesterday showed businesses plan deeper spending reductions than three months ago. Large companies estimate profit will fall 20 percent this year, almost twice the March forecast.
The pickup in demand has been slower than companies anticipated and firms are still burdened with factories and workers they no longer need, the Tankan showed. Fitch Ratings said yesterday it may take years for Toyota Motor Corp., Japan’s biggest company, to regain the level of profitability it achieved before the global financial crisis.
“Companies have started to realize that sales aren’t really going to come back,” said Hiroshi Shiraishi, an economist at BNP Paribas in Tokyo. “The situation is pretty bleak. Companies are faced with massive excesses in capacity.”
Demand from China hasn’t been enough to make up for crashing sales in the U.S. and Europe, where consumers are retrenching. At home, households are contending with pay cuts and the worst job prospects on record.
The Tankan index of sentiment among large makers of cars, electronics and other products rose to minus 48 in June from March’s record low of minus 58. The improvement was smaller than the 15-point advance analysts predicted, leaving pessimism on a par with that during the 1999 Asian financial crisis. A negative number means pessimists outnumber optimists.
Rejoice or Lament
“Do you rejoice about the improvement in sentiment or do you lament its low level? I think it’s the latter,” said Hiromichi Shirakawa, chief economist at Credit Suisse Group AG in Tokyo. “It could be two or three years before companies are using even three quarters of their production capacity.”
That’s putting pressure on managers to cut investment, jobs and wages payday loan online.
Toyota, which forecasts a second straight loss this year, plans to reduce spending 36 percent and trim pay for factory workers by 15 percent. Fitch yesterday cut the automaker’s credit rating by two notches, citing weak demand prospects.
“Most companies don’t feel demand for their finished products is really picking up,” said Shirakawa. “That means they don’t want to hire and they don’t want to invest.”
Big companies surveyed by the central bank said they plan to slash spending by 9.4 percent, more than the 6.6 percent drop they predicted in March and the worst projection in a June Tankan since comparable data were made available in 1983.
Falling Profits
Large manufacturers said they expect earnings to fall 39.5 percent in the year ending March. An index of excess workers stayed close to the worst in seven years. Economists expect the unemployment rate will surge to a record 5.8 percent in 2010 from the current 5.2 percent.
Still, the world’s second-largest economy probably grew for the first time in a year last quarter. Analysts predict gross domestic product rose at an annual 2.3 percent pace from a record 14.2 percent contraction in the first three months.
Some $2.2 trillion in stimulus plans worldwide has helped to prop up demand. At home, Prime Minister Taro Aso’s 25 trillion yen ($261 billion) in consumer incentives, job support and infrastructure spending since October spurred household confidence to a 14-month high in May.
“This recession had a very, very deep bottom,” said Tetsuro Sugiura, chief economist at Mizuho Securities Research Institute in Tokyo. “Even if the recovery doesn’t have that much traction, at least we’re not in freefall anymore.”