Japan Survey Shows a Drop in Optimism

NYT ^ | 04/02/05 | TODD ZAUN

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Japan Survey Shows a Drop in Optimism

By TODD ZAUN

TOKYO, April 1 - Japanese corporate leaders are much less optimistic about business prospects than they were three months ago as they worry about fading export growth, a widely followed Bank of Japan survey showed Friday.

The surprisingly sharp deterioration in the central bank's quarterly Tankan report of business sentiment suggests that it is taking longer than expected for Japan, the world's second-largest economy, to emerge from a slowdown that began last year.

The survey found that while a majority of executives were still optimistic about Japan's economy, the number of optimists was falling fast amid worries about rising commodity prices and prospects for the country's all-important exporters.

The most important index in the survey, which measures economic sentiment among large manufacturers, sank to 14 from 22 three months ago. The index score was much lower than the reading of 23 that economists forecast and the lowest level since a score of 12 a year ago.

The index score is calculated by subtracting the number of executives who say business conditions are deteriorating from those who say conditions are improving. A positive score means a majority of respondents are upbeat about their businesses.

Still, the large decline was a surprise to many economists who have been expecting the economic environment to improve this year after a soft patch that began a year ago.

"It's surprising that the survey has slipped so much when it appears from a lot of the other monthly data that things are actually starting to improve again," said Richard Jerram, an economist at Macquarie Securities. "These numbers are surprisingly conservative; in fact, they are worse than conservative."

Slowing export growth weighed on the survey result, economists said. Exports from Japan increased by 1.7 percent in February from a year earlier, the smallest increase in more than a year.

Exports of autos, machinery and electronic gadgets are crucial to the Japanese economy because they have been the only consistent source of growth over the last several years. A prolonged slowdown in exports now would drag on the economy, particularly because there are few signs of a pickup in consumer spending, which accounts for more than half of Japan's economy.

"The basic problem is that the main driver of growth is still exports, and we just sort of have to wait and see how exports come in," said Peter Morgan, an economist at HSBC Securities in Tokyo. "We need to see some pickup in exports to get the overall expansion going again."

In the central bank's survey of 10,344 companies, which was conducted in late February and March, respondents said they did not expect business conditions to change much over the next three months. Executives forecast the large-manufacturer's index would be unchanged at 14 next quarter.

The weak survey result was the latest in a string of disappointing economic figures. This week, the government reported that industrial production sank 2.1 percent in February from the month before as demand for electronic machinery weakened. Japan's unemployment rate unexpectedly crept up to 4.7 percent in February from 4.5 percent in March and consumer spending slowed more than anticipated.

Still, the recent lackluster numbers have not changed the view, shared by most economists, that the pace of growth will pick up in the first quarter of this year from the annual rate of 0.5 percent recorded for the last quarter of 2004. And with the United States and Chinese economies expanding steadily, demand for Japanese cars, televisions and factory equipment should remain strong, economists say.

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Ping!

[struggle]

And thus, the result of all those years of saying "shikata ga nai" has taken its toll.