BOJ survey shows Japan business mood fragile, highlights Abe's challenges

Sun Dec 14, 2014 10:48pm EST
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By Leika Kihara and Tetsushi Kajimoto

TOKYO (Reuters) - Japanese business confidence barely improved in the fourth quarter and is seen worsening, giving premier Shinzo Abe a grim reminder of the challenges he faces in reviving a recession-hit economy a day after his big win in Sunday's vote.

While corporate capital spending was strong, the Bank of Japan's quarterly "tankan" survey on Monday also underscored prevailing doubts among businesses about Abe's strategy to spark durable economic growth.

"With the election out of the way, Abe must shift his policies from those simply aimed at boosting sentiment to those that can actually change the way companies act. Otherwise, the benefits of Abenomics won't trickle down," said Kyohei Morita, chief Japan economist at Barclays Capital.

Abe's landslide election win gives him a fresh mandate to pursue his 'Abenomics' policies comprising massive monetary and fiscal expansion, and structural reforms.

The prime minister's strategy to end 15 years of deflation and drive sustainable growth has had only modest success so far, driving the stock market higher and boosting profits of exporters on the back of a weak yen.

However, the much-anticipated virtuous circle of higher capital investment, rising wages, domestic demand and robust growth has yet to fully materialize.

Monday's tankan embodied this slow progress, as companies retained their solid capital expenditure plans and complained of labor shortages. But sentiment among big manufacturers worsened slightly and improved only modestly among service-sector firms despite sharp rises in equities and the yen's steep falls.

With the BOJ already pumping money aggressively and the country's dire financial straits leaving it with little room for additional spending, Abe's challenge is to push through reforms to boost Japan's growth potential, analysts say.   Continued...

Cars are parked to prepare for export at a port in Yokohama, south of Tokyo June 28, 2013. REUTERS/Yuya Shino