Business World

Tuesday 30 September 2014

Japan holds its nerve and looks to finally emerge from stagnation

Tetsushi Kajimoto and Leika Kihara

Published 20/06/2014 | 02:30

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A woman looks out of a window at the observatory of a building in Tokyo, Japan
A woman looks out of a window at the observatory of a building in Tokyo, Japan

CONFIDENCE of Japanese manufacturers held steady in June while the service-sector mood rebounded from the previous month – an encouraging sign for the world's third-biggest economy as it tries to hold its ground in the face of soft exports and weakening consumption.

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The readings in a Reuters Tankan poll – which strongly correlates with the Bank of Japan's key tankan quarterly survey – reinforce policymakers' confidence that Japan can weather the pain of a recent national sales tax increase.

Still, the BOJ may face renewed pressure for additional stimulus if the weakness in exports persist, threatening to derail a recovery which kicked in last year following nearly two decades of stagnation.

In a speech that underscored some of the uncertainties ahead, BOJ board member Yoshihisa Morimoto warned of risks to the exports outlook as demand in emerging Asian markets fails to gather momentum.

He told business leaders in Akita, northeastern Japan: "We must continue to scrutinise the outlook for emerging economies, as well as developments in Europe's debt problem and the US economy."

His comments follow data on Wednesday which showed Japan's exports fell for the first time in more than a year, hit by a drop in shipments to Asia and the US.

Some market players worry that the hit from the April 1 tax increase to 8pc from 5pc and weak shipments could prove bigger than expected, squandering the progress made over the last year thanks to Tokyo's massive fiscal and monetary stimulus.

Still, Mr Morimoto stuck to the central bank's upbeat view on the economy, saying it was likely to continue recovering moderately with the pain from the tax hike on household spending seen receding around summer.

The Reuters Tankan poll backs Mr Morimoto's confidence, with manufacturers' morale seen improving in September, while the service-sector mood is expected to worsen but hover at relatively high levels.

The monthly poll of 400 major manufacturers and service-sector firms, of which 260 replied during the June 2-16 period, suggests that the BOJ's tankan due July 1 may show that the impact of the April tax hike is limited. (Reuters)

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