Global slowdown hits Japan's economy
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.