Japan manufacturing mood worsens on global slowdown

TOKYO – Big Japanese manufacturers’ sentiment worsened in August and is expected to improve only slightly in the coming months, a Reuters poll showed, as Europe’s debt crisis, a global slowdown and a stubbornly strong yen take their toll on the export-reliant economy.

Non-manufacturers including real estate and construction firms held steady, backed by rebuilding from last year’s earthquake and tsunami, but the outlook was clouded by waning momentum in consumer spending.

Manufacturers and non-manufacturers – which include firms engaged in retail, real estate and construction – expect business conditions to edge up over the next three months, albeit slightly, according to the poll of 400 big firms, of which 278 responded during the August 6-21 survey period.

The monthly poll, which closely correlates with the Bank of Japan’s quarterly tankan corporate survey and growth trends in the economy, comes after Japan reported its sharpest drop in exports since January in line with grim data from other Asian export engines.

“Overseas demand is sluggish as Europe’s sovereign debt problems have been deadlocked, China’s economic growth is slowing down and the yen’s strength against the dollar and the euro has taken root,” one chemicals company said in the survey.

Despite the weakening external sector, the Bank of Japan hopes to leave momentary policy steady for as long as possible to save its limited further options after having expanded monetary stimulus in February and April.

The central bank reported a slight improvement in business confidence in its last tankan report issued on July 2.

In the Reuters Tankan, the manufacturers’ sentiment index, derived by subtracting the percentage of pessimistic responses from optimistic ones, fell 2 points to minus 4 in August, meaning pessimism still outweighed optimism. Sentiment worsened in sectors such as steel, chemicals and cars, as domestic subsidies for low-emission vehicle purchases are running out.

The manufacturers’ index is expected to rise only to minus 2 in November.

The index for non-manufacturers was unchanged at plus 8, and it is seen improving to plus 12 in November, lifted in part by reconstruction efforts although stimulus-driven private consumption shows some signs of petering out.

Sectors such as real estate and construction led the gains, while retailers turned pessimistic for the first time in four months.

Japan’s economic growth slowed to 0.3 percent in April-June, or an annualized rate of 1.4 percent, as a rebound in private consumption loses momentum and Europe’s debt woes weigh on global demand.

Economists have cut their expectations for Japan’s growth in the second half of 2012, but they still forecast it will outpace most other G7 countries.

The euro zone barely skirted recession in the first half of 2012 but one is expected in the second half, while analysts have lowered their expectations for the U.S. economy in the latest Reuters poll. –Tetsushi Kajimoto and Izumi Nakagawa, Reuters