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Economy failing to create positive growth cycle: BOJ survey

The diffusion index that shows business confidence among big manufacturers stood at plus 6 in September, unchanged for two successive quarters, and business sentiment among large non-manufacturers dropped to plus 18 from plus 19 for the third straight quarterly fall, the Bank of Japan (BOJ)'s Tankan quarterly survey showed on Oct. 3.

    Japan's economy has been marking time due in part to the strong yen as it still fails to create a positive growth cycle pursued by the BOJ and the government.

    "Sales of women's clothing have been bad since the beginning of this year," said a senior sales official in charge of women's apparel at the Takashimaya department store in Tokyo's Nihonbashi district. Sales of women's clothing dropped 15 percent in September from a year earlier due in part to a decline in the number of visiting customers caused by bad weather. The department store will try to regain lost ground by setting up a space this autumn for low-priced products targeting women aged around 50, but it remains unclear whether it can expect a boost in sales.

    "Abenomics," the economic policy mix promoted by the government of Prime Minister Shinzo Abe, is aimed at creating a positive growth cycle for the economy by implementing bold financial and fiscal policies to change the sentiment of consumers in such a way as to help in turn to boost capital investment and consumption. But sales at three of four major department stores on a like-for-like basis posted declines in September from the same month last year, according to data released on Oct. 3.

    The household expenditure survey conducted by the Internal Affairs and Communications Ministry shows that consumer spending by households with at least two persons each had dropped for six straight months until August. The Tankan survey also shows that the diffusion index for "retailers" deteriorated 4 percentage points in September from the previous survey. Kenji Tanaka, head of the Development Bank of Japan (DPJ)'s economic research department, said that the fact that consumers were keen to save money is putting downward pressure on the entire non-manufacturing industry.

    Behind the economic doldrums is the fact that businesses cannot raise wages for their employees or hire more people proactively. Japan Iron and Steel Federation Chairman Kosei Shindo (Nippon Steel & Sumitomo Metal Corp. president) pointed out future concerns, saying, "Uncertainties such as the strong yen and financial policies are covering the Japanese economy." The yen has strengthened by nearly 20 yen to the dollar since the beginning of this year, and the assumed exchange rate by companies reflected in the latest Tankan survey stood at 107.92 yen to the dollar -- more than 3 yen higher than that seen in the previous survey. Despite all this, the rate assumed by companies is still lower than the current 101 yen level against the dollar. Therefore, it could become a factor further aggravating business performances toward the end of this year.

    In the September Tankan survey, capital expenditure planned by big manufacturers in fiscal 2016 was revised down by 0.1 of a point from the previous survey conducted in June. Yasunari Ueno, chief economist at Mizuho Securities Co., said, "Capital spending is usually revised upward in the September Tankan survey, but it is slack this time."

    The government and the BOJ have been boosting demand for construction by taking economic measures and implementing a negative interest rate policy, but their effectiveness in stimulating the economy is limited. The president of a security firm in the Saitama Prefecture city of Kuki said, "We have been asked by a major general contractor to provide security personnel, but we can't secure people." The company has been receiving an increasing number of requests to provide traffic control guards at construction sites, but it has not been able to take advantage of the increased demand due to a manpower shortage, he said. Since there is downward pressure from contractors on prices, the company is unable to sharply raise wages for its employees, he added.

    The DPJ's Tanaka said, "Conventional public works projects won't create a positive growth cycle. We need measures designed to boost expectations for future growth."

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