Japan cuts economic view for fourth month in row as recession looms

Saturday, 17 November 2012 00:01 - - {{hitsCtrl.values.hits}}

Reuters: Japan’s Government cut its view of the economy for a fourth straight month in November, marking the longest such sequence since the 2008-09 financial crisis and underlining the view that the country is slipping back into recession as the global slowdown bites.

Weakening corporate capital spending was the chief culprit behind the downgrade, the government said as it warned of persistent weakness in the economy in the face of uncertainty over the euro zone debt crisis and a slowdown in China.

The downgrade comes as Prime Minister Yoshihiko Noda is due to dissolve parliament’s lower house on Friday for a snap poll on December 16, likely paving the way for a change of government and adding to the murky outlook for the world’s third-biggest economy.

The government’s bleak assessment may add pressure on the Bank of Japan for further policy easing measures, although sources told Reuters that the bank is set to hold fire next week and may sit still until next year to size up the policies of a new government.

“The Japanese economy shows weakness recently due to the deceleration of the world economy,” the Cabinet Office said in its monthly report.

The previous monthly report had also noted weakness in the economy but had cited “some steadiness” due to a gradual pickup in corporate capital spending seen back then.

But the latest report underscored a deterioration in business expenditures, a key driver of domestic demand and overall economic cycle.

“Capital spending was the major factor for the downgrade,” a Cabinet Office official in charge of compiling the report said.

“The global economy is showing some bright signs but we can’t be optimistic. Corporate profits are sluggish as falling exports weigh on output, the corporate mood and capital spending.”

In the report, the government raised its view of the world economy for the first time since February 2011 while noting that its recovery remains tepid. It sees Japan’s exports remaining weak and factory output decreasing, keeping its view unchanged.

Underscoring concern that domestic demand may lose momentum, the government cut its view of private consumption and capital spending for the first time in two months, saying consumption shows weakness and business investment has a weak tone.

The government also cut its view of corporate profits, saying that they are flattening further, mainly among manufacturers. It was also more pessimistic about bankruptcies and the employment situation.

Japan’s economy outperformed most of its Group of Seven peers in the first half of this year but growth has stalled since then, with the positive effect of rebuilding from last year’s earthquake fading and the strong yen and the global slowdown weighing on exports.

The economy shrank in the third quarter for the first time since 2011 with capital spending posting a bigger-than-expected fall. Sony Corp and Panasonic Corp have cut spending plans to cope with massive losses as they struggle with competitive markets and a strong yen.