Global slow­down hits Ja­pan's econ­omy

The Pak Banker - - MARKETS/SPORTS -

The gov­ern­ment's de­ci­sion to down­grade its ba­sic as­sess­ment of the coun­try's econ­omy for the first time in five months can largely be at­trib­uted to do­mes­tic busi­nesses be­ing af­fected by the slow­down of the overseas econ­omy, stronger yen and fall­ing stock prices. The Abe­nomics eco­nomic pol­icy pack­age has been based on a sce­nario in which brisk cor­po­rate per­for­mance brings about a pos­i­tive growth cy­cle. How­ever, cur­rent cir­cum­stances are mak­ing it more dif­fi­cult to see such a sce­nario play­ing out.

Fu­ture busi­ness trends will likely have a great im­pact on the de­bate over whether the planned con­sump­tion tax hike should be post­poned or not.

Some ma­jor elec­tronic ap­pli­ance mak­ers, in­clud­ing Hi­tachi, Ltd. and NEC Corp., have re­vised down their busi­ness fore­casts this year. Last year, the yen ex­change rate hov­ered at around ¥120 against the dol­lar. How­ever, since the start of this year, the value of the Ja­panese cur­rency has strength­ened to nearly ¥110 per dol­lar. The stronger yen is a dis­ad­van­tage for ex­ports on a yen ba­sis, and has the ef­fect of de­creas­ing prof­its from overseas.

An em­ployee of a ma­jor elec­tronic equip­ment maker lamented, "Fa­cil­i­ties for man­u­fac­tur­ing are not sell­ing well across the globe," due to the slow­down of China's econ­omy and also the slug­gish econ­omy in sup­plier coun­tries of nat­u­ral re­sources.

In the monthly re­port re­leased Wed­nes­day, the gov­ern­ment up­graded its as­sess­ment on cor­po­rate cap­i­tal ex­pen­di­tures for the first time in nine months. But ac­cord­ing to the Jan­uary ma­chin­ery or­der sta­tis­tics - a lead­ing in­di­ca­tor for cor­po­rate cap­i­tal in­vest­ment - many firms in var­i­ous fields were suf­fer­ing from a de­crease in or­ders, with the ex­cep­tion of the steel in­dus­try, which re­ceived a large num­ber of or­ders. One econ­o­mist says firms will re­act "by de­lay­ing the im­ple­men­ta­tion of their in­vest­ment plans if the overseas busi­nesses fur­ther lose speed."

Re­duced con­sumer spend­ing is also an is­sue. As a coun­ter­mea­sure, ma­jor restau­rant in­dus­try firm Sky­lark Co. has shifted to serv­ing dishes in the ¥500 range at its fam­ily restau­rant chains and de­creas­ing the num­ber of dishes priced from ¥600 to ¥700. The com­pany hopes to ap­peal to more cus­tomers as an in­creas­ing num­ber of con­sumers pre­fer low-priced prod­ucts. Through Fe­bru­ary, the auto in­dus­try had suf­fered a drop in new ve­hi­cle sales (in­clud­ing mini­cars) on a yearon-year ba­sis for 14 con­sec­u­tive months. The mak­ers are fac­ing "dif­fi­cul­ties sell­ing ve­hi­cles ex­cept for some pop­u­lar com­pact cars" said Yoshi­taka Hayashi, a board mem­ber of the Ja­pan Au­to­mo­bile Deal­ers As­so­ci­a­tion.

At a Wed­nes­day press con­fer­ence af­ter a meet­ing of Cab­i­net mem­bers in charge of the monthly re­port, Eco­nomic and Fis­cal Pol­icy Min­is­ter Nobuteru Ishi­hara gave an anal­y­sis on the weak­en­ing con­sump­tion, say­ing, "The volatil­ity of stock prices and for­eign ex­change rates has af­fected con­sumer sen­ti­ment, putting a brake on con­sump­tion."

As many com­pa­nies have seen busi­ness per­for­mance re­cover to record lev­els, the Abe Cab­i­net's plan was to en­cour­age com­pa­nies to raise wages to stim­u­late in­di­vid­ual con­sump­tion. In this year's shunto spring wage ne­go­ti­a­tions, how­ever, the wage hike lev­els of­fered to la­bor unions by many ma­jor firms were lower than the pre­vi­ous year.

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