March 1, 2024

Business Confidence Sags in Japan

The data are a subset of a wider, closely watched business sentiment survey, the Tankan, which is conducted quarterly by the Bank of Japan and was released Friday. In an unusual step, the bank stripped out responses returned before the earthquake and tsunami that struck on March 11 from those received after that date, in an effort to gauge how sentiment had shifted in the wake of the twin disasters.

The post-quake Tankan results released Monday showed large manufacturers, who are most closely watched by economists and manufacturers, turning negative in their outlook for the next three months, with a reading of minus 2. Answers received from those who replied before the quake made for a reading of plus 3. A negative number means pessimists outnumber optimists.

Small and medium-size businesses, which tend to be more reliant on the domestic economy, had been negative even before the quake. They turned even more nervous after the disaster, the data released Monday showed.

Economists cautioned that the data probably underestimated the impact of the disasters, and of the nuclear crisis that has unfolded at the Fukushima Daiichi power plant since then. The Bank of Japan also stressed that the relatively small number of responses that came in after March 11 meant that the results probably did not fully reflect the shift in sentiment.

Still, the data give one of the clearest pictures available so far of the effect that the disasters have had on business confidence in what is the world’s third-largest economy.

Aside from the human toll and the damage directly caused by the quake and tsunami in the country’s northeast, the disasters have caused considerable disruption to businesses elsewhere in the country, by knocking out part of Japan’s power-generation capacity.

Numerous manufacturers have had to idle plants, both because of power cuts and because of disruption to supply chains, especially in the electronics and automobile sectors.

Many economists believe overall industrial production slumped by more than 10 percent in March, compared with February, and that the impact of the quake and power shortfalls is likely to be felt for several months. Much uncertainty remains, notably about the full measure of supply chain disruption and about the effect of the disasters on consumer spending in Japan.

Still, most economists expect a marked pickup later this year, as reconstruction activity kicks in. Although many have lowered their growth forecasts for the Japanese economy, most say the disaster will delay but not completely derail Japan’s gradual economic recovery.

HSBC, for example, lowered its forecasts for G.D.P. growth this year by 0.5 percentage point to 0.9 percent, but it forecasts 3.5 percent growth for next year. Economists at Société Générale lowered their forecast for 2011 from 2 percent to 1 percent in the wake of the quake, but they project that a rapid rebound will kick in as early as the current quarter. They forecast 3.9 percent growth for 2012.

Similarly, analysts at Nomura have lowered their full-year projection 0.7 percentage point to 0.8 percent growth but project expansion of 2.9 percent in 2012.

“We expect real G.D.P. to contract in both 2011 Q1 and Q2, pushing back Japan’s move out of its economic lull. We nonetheless look for real G.D.P. to return to growth in Q3 as supply chain problems ease, and for growth to accelerate sharply in Q4 on a marked increase in reconstruction demand,” the Nomura analysts wrote in a research note last week.

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