Japan's economic outlook remains bleak. Economic indicators such as GDP, unemployment, exports and c...
Japan's economic outlook remains bleak. Economic indicators such as GDP, unemployment, exports and consumer spending have been weak.
The banking industry remains in debt. Prime Minister Koizumi's reforms are yet to be implemented and recovery will be a long process. Although the Japanese economy was heading into recession before the events of 11 September, the attack has delayed a recovery.
Naoki Suzuki, head of Schroders' small cap investment management team, says: 'Most indicators show the economy is heading towards recession. Poor economic prospects with continued deflation means monetary policy will remain loose.
'Exports and capital spending have been the major swing factors behind decelerating growth. Domestic demand has held up better so far, although rising unemployment and fiscal retrenchment may erode this.'
Chris Tracey, global strategist at JP Morgan Fleming, claims corporate confidence is plummeting, with sharp falls in earnings predicted.
He says: 'The Bank of Japan's latest quarterly Tankan Business Confidence Index, released on 1 October, suggests even before 11 September the domestic economy was decelerating rapidly. Corporate profitability will therefore undoubtedly continue to come under pressure from weakening domestic and overseas demand, with current forecasts predicting a 20% fall in Japanese earnings for the year to March 2002.
'The terrorist attacks and the corresponding threat posed to the US economy further undermined market sentiment, leading to large falls for export stocks.'
Consumer spending, which accounts for about 55% of the economy, has slowed. Sales of household electrical appliances dropped 20% in August. Sales of new cars fell 14% in September.
The Tokyo area core CPI index was 1.2% lower in August than a year ago. The economy is expected to shrink 1.1% this fiscal year and contract 0.8% in the second quarter.
The Koizumi government restructuring plans for the economy, government and legal system are positive in the long term.
But Suzuki warns: 'In the short term it will be painful for certain industries such as construction. Key reforms are intended to clean up bad debts in the banking sector, improve fiscal policy and promote growth areas via deregulation and privatisation in the post office and other public companies.'
Banks have an estimated debt of ¥150 trillion in bad loans and the industry is reluctant to lend new clients money. Lending fell 4.2% in September from a year ago.
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