Japan’s economy likely to slip back into recession

FXStreet (Mumbai) - A Reuters poll today showed declining confidence among Japanese manufacturers. Confidence among manufacturers fell in November for a third straight month to a 2-1/2 years low.

The fall in confidence reflects fears that a China-led slowdown in overseas demand is likely to have pushed the economy into recession.

Disappointing trade data raises fear of recession

Shrinking sales to China hurt the volume of shipments resulting in slowing of Japan's annual export growth in September. The disappointing trade figures raised the concern that weak overseas demand is pushing the economy back into recession. The Ministry of Finance data showed exports rose just 0.6 per cent in the year to September. Real exports rose 0.2 per cent in July-September while real imports grew 2.6 pe rcent. Net exports thus weighed on Japan’s third-quarter GDP.

Indexes look grim for now

The service sector mood is not pleasant either. The retail sector was hit by decline in private consumption, which accounts for about 60 per cent of the economy. The service sector index dragged down by wholesalers and retailers fell to 22 in November from 27 in October. The index is expected to slip further to 21 in February.
The Reuters Tankan sentiment index for manufacturers fell to 3 in November from 7 in October, posting the lowest reading since minus 4 in April 2013.

Government data due on Monday is likely to show that the economy slipped back into recession through September due to a drop in capital spending in the face of weak foreign and domestic demand.

More stimulus needed to foster growth

Japan's central bank decided to keep its monetary policy unchanged at its meeting on 30th October despite little progress made by the BOJ in the direction of spurring inflation. Investors expect core CPI inflation of 1.05% over the next 10 years. The BOJ further downgraded its near-term inflation forecast (FY2015-16). To counter the tight labour conditions companies have expanded overtime and hired more part-time workers. This measure adopted by companies to restrict labour costs has hindered efforts to boost inflation, the central bank said in its analysis. Data for September showed the core inflation at minus 0.1 per cent.

Household spending fell 0.4 per cent in September from a year earlier, while incomes slipped 1.5 per cent. Unemployment remained at 3.4 per cent, and there were 1.24 jobs available for each job seeker.

The Bank of Japan on 30th October cut its economic growth and inflation projections. The weak indicators will keep the central bank under pressure to ease policy again to hit its ambitious 2 per cent inflation target next year.
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