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Japan business mood dips as economy seen in recession: Reuters Tankan

A woman looks at cooked food at a delicatessen at a shopping district in Kamakura, south of Tokyo, Japan on Oct 14, 2015.

[TOKYO] Confidence among Japanese manufacturers fell in November for a third straight month to levels unseen in about 2-1/2 years, a Reuters poll showed on Wednesday, reflecting fears that a China-led slowdown in overseas demand may have pushed the economy into recession.

The service sector mood also soured as sectors such as retail took a hit from weakness in private consumption, which accounts for about 60 per cent of the economy, underscoring just how tepid economic recovery is in the absence of a growth engine.

The monthly Reuters Tankan, which closely tracks the Bank of Japan's tankan quarterly survey, showed both manufacturers' and service-sector sentiment is seen largely steady over the next three months, reflecting uncertainty about the outlook.

The poor poll results will be followed by government data out on Monday, which is expected to show the economy slipped back into recession through September due to a drop in capital spending in the face of weak foreign and domestic demand. "Chinese and Asean markets remain stagnant, and our domestic business related to private consumption is not performing well either," a manager at a chemicals firm said in the survey, which companies answer anonymously.

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The Reuters Tankan polled 514 big and mid-sized Japanese companies between Oct 26 and Nov 6, of which 260 responded. "Orders we receive from clients are mostly linked to refurbishing old facilities and subsidy-related investment,"said a maker of electric machinery. "We hardly see the kind of production increase that is seen when the economy is booming. As such, the economy is stalling." The Reuters Tankan sentiment index for manufacturers fell to 3 in November from 7 in October, posting the lowest reading since minus 4 in April 2013, when the central bank embarked on its quantitative and qualitative easing drive. Industries such as oil refining and precision machinery weighed on overall sentiment. The index is seen unchanged in February.

The service sector index fell to 22 from 27 in October, the lowest since March, dragged down by wholesalers and retailers. The index is expected to slip further to 21 in February.

The last BOJ tankan issued on Oct 1 showed big manufacturers' morale fell in the three months to September but the service sector's mood rose to a more than a two-decade high.

The Bank of Japan last month cut its economic growth and inflation projections but held off on expanding stimulus, hoping that the economy recovers well enough to accelerate inflation to central bank's ambitious 2 per cent target.