[TOKYO] Japanese business confidence slipped to the lowest in 1-1/2 years in October and it is seen struggling to rebound, a Reuters poll showed, a further sign Tokyo may be forced to offer fresh policy support to recharge an economy ailing from a sales tax hike.
The loss of confidence follows a slew of weak data - including a shocking drop in factory output and falling household spending - and comes at a time of renewed turbulence in global markets amid worries over weakening global growth.
The deteriorating sentiment could add to pressure on the central bank to ease policy further although BOJ officials look set to refrain from additional stimulus for now.
The sentiment index for manufacturers in the Reuters Tankan, which closely correlates with the Bank of Japan's key tankan survey, fell to 8 in October from 10 in September when it tumbled the most in nearly two years. The index was at its lowest level since May 2013, and it is expected to stay flat in January.
A flagging mood and weak economic data could complicate Prime Minister Shinzo Abe's decision by year-end whether to go ahead with a planned sales tax hike to 10 per cent next year.
April's tax hike to 8 per cent from 5 per cent pushed the world's third largest economy into the deepest slump in the second quarter since the 2009 global financial crisis. "Consumer sentiment has been slumping since the sales tax was raised, and uncertainty is high on the outlook," an executive at a retailer said in the Reuters Tankan.
The Reuters poll surveyed 486 big Japanese manufacturers and nonmanufacturers, of which 270 replied during Sept 30-Oct 14.
The managers, who responded anonymously to the poll, raised concerns about higher import costs of fuel and raw materials boosted by a weak yen. Tame global growth weighed on the outlook amid lacklustre performance in Chinese and European economies.
The yen hit a six-year low of 110.09 to the dollar earlier this month. It bounced to a more than one-month high of 105.21 on Wednesday after weak US data raised concerns that the Federal Reserve would delay its first interest rate hike.
The last BOJ tankan showed big Japanese manufacturers grew slightly more optimistic in the third quarter but service-sector sentiment dipped, adding to signs that a solid economic pickup will remain elusive without fresh stimulus.
The Reuters Tankan service-sector index fell to 20 in October from 22 in September, and it is forecast to weaken further to 18 in January.
The survey indices subtract the percentage of companies saying conditions are improving from that of companies saying conditions are worsening. A positive number means optimists outnumber pessimists.
Abe has reiterated that he was "neutral" on whether to go ahead with the planned tax hike next year, saying that decision would depend on the strength of economic indicators, including for the July-September quarter.
With the recovery sputtering and inflation appearing stalled well below the BOJ's target of 2 per cent, investors speculate that Abe may order a burst of government spending and the BOJ may oblige with further monetary stimulus to allow the tax hike.
The BOJ has stood pat since April 2013 when it unleashed an intense burst of stimulus, pledging to achieve the 2 per cent goal in roughly two years via aggressive asset purchases. REUTERS