Shoppers are seen at a supermarket in Tokyo. The Bank of Japan estimates that the sales tax rise will add 1.7 percentage points to the country’s annual consumer inflation in April and 2 points from May onwards.
The mood of Japanese manufacturers is seen as less optimistic in the three months to September and it will probably improve only slightly in the coming quarter, indicating that a sale tax hike and slow recovery in exports are hurting firms’ sentiment.
The Bank of Japan’s quarterly “tankan” business sentiment survey will also likely show that big companies are trimming their capital expenditure plans this fiscal year.
The survey will probably show the headline index for big manufacturers’ sentiment worsened by two points from three months ago to plus 10, according to the Reuters poll of 17 economists.
That would be the second consecutive quarterly deterioration as damage from the April sales tax hike to 8% from 5% continues. The increase hit consumer spending.
The Reuters Tankan, which is strongly correlated with the central bank’s closely watched poll, showed that confidence at Japanese manufacturers fell the most in nearly two years in September as a tax increase hit the economy harder than expected.
“A pullback in demand after the sales tax hike continues, and unstable weather in summer as well as sluggish recovery in exports are reasons behind this,” said economists at Dai-ichi Life Research Institute.
The Reuters poll found that the service-sector mood also weakened, with the big non-manufacturers’ index seen at 17, down two points from the level three months ago. That also would be a second straight quarterly deterioration.
Both big manufacturers and non-manufacturers expect business sentiment to improve only slightly in October-December, the poll showed, amid uncertainty over the outlook for the economy.
According to the poll, the BoJ’s closely watched tankan survey will show that big firms intend to increase their capital spending by 7.2% in the fiscal year ending March 2015. That would be slightly down from a 7.4% rise seen three months ago.
“Overall, firms capital spending plan for this fiscal year will likely show solid footing led by upgrading ageing equipment which had been postponed,” Takeshi Minami, chief economist at Norinchukin Research Institute said in a report. The central bank will release the survey on October 1. Separately, government data is expected to show that Japan’s consumer price inflation eased in August as the pace of increase in energy costs has slowed.
The nationwide core consumer price index, which includes oil products but excludes the volatile prices of fresh fruit, vegetables and seafood, is seen to have risen 3.2% in the year to August, a Reuters poll of 24 economists showed.
That would compare with a 3.3% annual increase in July. When excluding the impact of the sales tax hike in April, core CPI is expected to have risen 1.2% in the year to August, from the 1.3% annual increase in the previous month. And consumer inflation remains far below the Bank of Japan’s 2% inflation target. The BoJ estimates that the sales tax rise will add 1.7 percentage points to Japan’s annual consumer inflation in April and 2 points from May onwards.
The government will announce consumer price inflation data on September 26.
The world third-largest economy shrank 7.1% in the second quarter, hit by the sales tax. It was the biggest contraction since the 2009 global financial crisis.
