TOKYO — With Japan’s economy officially described as deteriorating for the first time in over six years, the government and ruling party are ramping up calls for further stimulus measures as the country gears up for an upper house election in the summer and a tax hike in the fall.
The Cabinet Office released a business condition index for March on Monday, with the assessment that economy is “worsening” — the second-poorest showing out of five possible grades.
Exports to Asia have decreased due to the trade war between the U.S. and China. Slowing trade in turn has weighed down revenues at trading houses and other wholesalers.
“The U.S. raised tariffs on Chinese manufactured goods on Friday, and these moves have not been reflected whatsoever in the latest round of statistics,” said Hiroshi Yoshikawa, president of Rissho University. “We must be prepared for tougher conditions for Japanese exports and production due to U.S.-China trade frictions.”
The Cabinet Office has given the assessment of a “worsening” economy twice before, the first from June 2008 to April 2009 during the global financial crisis, then from October 2012 to January 2013 during the European debt crisis. Expert panels later deemed both periods to have been recessions.
But the five-step assessments only began in 2008. “We have a limited sample, so we can’t say on this alone” whether Japan has entered a contraction phase, a Cabinet Office representative said.
“Unless something comparable to the Lehman crisis happens, we plan to work hard on the economy so we can raise the consumption tax rate (to 10%) as planned in October,” Chief Cabinet Secretary Yoshihide Suga told reporters on Monday.
“A rebound in the Chinese economy can be expected, while the slump in global semiconductor sales has been recently bottoming out.
Domestically, some believe that the extended vacation that spanned the end of April and early May stimulated consumer spending,” said Yuji Shimanaka of Mitsubishi UFJ Morgan Stanley Securities. “I don’t think the economic recovery that began in December 2012 has already entered a recession.”
But there is a growing push in the ruling Liberal Democratic Party for additional stimulus measures should the Japanese economy show signs of a further downturn, given the upper house election this summer. “Naturally, we will make various decisions based on the situation,” Suga said.
The coincident composite index, which represents current business conditions, fell 0.9 points from February to 99.6. The resulting three-month average automatically triggered a downgrade from “signaling a possible turning point” in the economy, the assessment in January and February.
Five of the seven components of the coincident index fell, with the indicator for shipments of investment goods down 2.3% in March. Equipment for producing chips and flat panels suffered, according to the Cabinet Office. Shipment of durable goods, such as automobiles, along with mining and manufacturing production, were sluggish as well.
The leading index, which forecasts business conditions several months into the future, also fell for the first time in two months as consumer confidence decreased.
Market watchers are now focused on the May monthly economic report, expected shortly after the January-March gross domestic product comes out next Monday. The report will draw conclusions from the Bank of Japan’s Tankan survey for business sentiment, as well as employment levels and consumer prices.
The trade war is expected to continue weighing on the global economy, particularly auto sales. The U.S., where Japanese players logged strong sedan sales, has lost steam, while growth in Asia is slowing as China flags. “There are too many uncertainties,” said Akio Toyoda, Toyota Motor president and chairman of the Japan Automobile Manufacturers Association.