Japan's frail business mood, exports show economy straining under tax hike

Thu Sep 18, 2014 2:17am EDT
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By Tetsushi Kajimoto and Stanley White

TOKYO (Reuters) - Confidence at Japanese manufacturers fell the most in nearly two years in September as a tax increase hit the economy harder than expected, while exports slid in August in a further sign that conditions have deteriorated in the crucial third quarter.

This frailty in the monthly Reuters Tankan business confidence, and the shaky outlook, could raise in coming months the pressure on the BOJ to ease policy further and complicate Prime Minister Shinzo Abe's decision on whether to raise the national sales tax again.

The first phase of the tax hike in April triggered a 7.1 percent slump in the economy in the second quarter - the worst contraction since the global financial crisis.

The third quarter data will be crucial for Abe's second-stage tax-rise decision, due by year-end, but some analysts say the Reuters survey suggests that the expected recovery is not taking hold.

"Both external and domestic demand are weak, and things in the summer are clearly undershooting forecasts by the government and the BOJ, eroding business confidence," said Takeshi Minami, chief economist at Norinchukin Research Institute.

In fact, the worsening sentiment in Reuters Tankan, with only a feeble improvement forecast for December, bodes ill for the Bank of Japan's quarterly tankan survey, due Oct. 1, which had been forecast to rebound in the third quarter.


A security guard salutes at the entrance of the Bank of Japan building in Tokyo January 22, 2014.    REUTERS/Yuya Shino