Sizing up the general corporate sentiment in Japan in 2014 and beyond

Thomson Reuters has recently conducted a monthly poll entitled as the “Reuters Corporate Survey” on businesses in Japan, and some of the highlights of the survey indicated than approximately two-thirds of Japan Inc. (general reference made to Japanese corporations) are expecting to keep a close watch on how the Bank of Japan (BOJ) plans to ease further during the first-half of 2014. Second, Japanese firms are expecting 2014 ‘Abenomics’ to be focused on carrying out the fiscal reforms (part of the so-called first arrow of the three arrows targeting at revitalising Japan’s economy), and third, Japanese firms expect the negative impacts/fallouts from April 2014’s consumption tax hike from the current 5.0 percent to 8.0 percent will be minimal, short-term, and should not impact Japan’s overall economic fundamentals.

The latest views expressed by Japan Inc. are a testament of continued corporate support of Prime Minister Shinzo Abe’s economic policies, and it is generally seen as quite positive, despite his current low approval ratings which was impacted by the recent decision he made regarding about the setting up of a United States-style White House Intelligence Committee, which many Japanese people are perceiving as a gradual intrusion to their private lives.

Separately, a host of economic data released in Japan over the course of these past two days (December 09-10, 2013) including a slowdown in Japan’s annualised Q3 2013 gross domestic product (GDP) to 1.90 percent, from the prior year’s annualised figure of 3.80 percent during the same quarter, but ahead of Reuters estimate of 1.60 percent  annualised growth for Q3. The country’s latest October 2013 current account deficit came in at negative Japanese Yen (JPY) (127.80) billion versus an expected positive JPY 153.00 billion trade surplus. The survey of business sentiment or ‘Tankan’ survey showed a reading of 17.00 for the month of December 2013, versus the prior reading of 14.00. However, the latest quarterly data (October to December 2013) on business confidence released by the country’s Ministry of Finance (MOF) on December 10, 2013 indicated a somewhat disappointing read of 9.70, versus the prior quarter of 15.20.

The various data releases have indicated a somewhat disappointing picture about Japan’s current economic landscape, namely the slowdown of Japan’s economic growth in October 2013, a worse than expected trade deficit for the month of October 2013, but is unlikely to derail Japan’s economic growth projections for 2014 which is expected to revolve around a continued weakness in the Japanese Yen currency, and an accommodative Bank of Japan (BOJ), which is expected to move ahead with the continued easing of the monetary policies as part of the policy goal of achieving at least 2.0 percent inflation growth target by the second-half or in and around October 2015 when the next round of consumption tax rate hikes from April 2014’s 8.0 percent increment to 10.0 percent starts to kick in.

The latest Reuters survey covers a sample size of executives at 261 Japanese corporations, and was conducted between November 22, 2013 and December 04, 2013. It is also regarded as a corporate-wide support for the continuation of ‘Abenomics’, and most of them have expressed their hopes that the BOJ will continue its policy of maintaining its monthly government bond purchases to the tune of USD 70.00 billion a month in order to bolster the economy, and hopefully bring itself closer to the 2.00 percent inflationary growth by the second half of 2015. Many sceptics have expressed caution over the expected time line set by the BOJ on the inflationary growth of 2.00 percent as there is evidence pointing towards the fact that historical data has not shown a sustained rise in price levels following the various rounds of BOJ’s quantitative easing (QE) programmes, and are expressing doubts that the 2.00 percent inflation target will be achieved by the second-half of 2015. It is not surprising to note that most business executives hardly share common mind sets with economists, as the businesses are mostly concerned about how policies will impact their corporate bottom-line and what they can deliver to their shareholders, and stakeholders, rather than sitting down, crunching economic figures, and figuring out whether this or that policy works or does not work at all.

The survey also highlighted some of the notable results, namely a huge support for fiscal policies to be at the forefront, driving the economic growth upwards, and in the process help to boost up business and consumer confidence. One of the executives working for a local chemicals firm was quoted as saying that, “Continuous growth can’t be expected if a path of fiscal reform is not presented.” There are expectations expressed by many corporations that with the 8.00 percent increase in the National Consumption Tax by April 2014, it is expected to bring about an additional JPY 8.00 trillion yen in additional government revenue, which could benefit their business interests through potential corporate tax relief, additional incentives to bring about the advancement of workplace technology into their respective work environments. Employees working for Japanese owners are also able to play a key part on the Company’s wealth, and achievements through flexible workplace schedules, and regular participation in regular dialogues with management.

Overall, the survey appears to indicate that many businesses have expressed their positive belief that the Japanese government will push ahead with the reform agenda of opening up the Japanese economy through competition, ensuring global competitiveness of the businesses stay sustainable and relevant when it comes to coping with potential uncertainties/challenges looming ahead in 2014.

About Hock Meng Tay - Chief Editor, Asia-Pacific Region

Hock Meng Tay, CAIA has written 181 post in this blog.

Chief Editor, Asia-Pacific Region Hock Meng Tay is a CAIA holder and is currently taking CFA qualification. He has over 10 years of experience working as research associate in several investment companies.He is an expert in financial analysis and has published research reports in his current role. He obtained his Masters of Business Administration in Integrated Management and Masters of Arts in Economics while serving his internship in Starsource Inc