Japanese Economy Rebounds, Firms Nudged to Raise Capital Expenditure by PM Abe

According to a recent survey by the Japanese government, the business scenario in Japan is looking positive since the July-September quarter and companies are also planning to keep their spending graphs moving with a positive incline. The result of the survey has brought much-needed relief as the policymakers were worried and speculated a fall in the country’s economy and a possible crash of the Japanese market due to a decline in Chinese growth.

The poll is the first comprehensive business confidence survey for the current quarter. It is in series with a miserable display of data which also includes a survey elaborating on the gloomy mood of the service sector especially in the month of August.

As per the statement of Takeshi Minami, the chief economist from Norinchukin Research Institute.

“Big manufacturers appear a bit cautious about the outlook, probably due to uncertainty over China. But it’s not as if they are all gloomy since U.S. demand remains strong”.

He added further in his statement by saying “Capital expenditure plans remain fairly strong, so I don’t think we need to be too pessimistic about the economy”.

In another survey, conducted jointly by the Finance Ministry of Japan in association with the research wing of the Cabinet Office on Friday too gave positive indications. The index recorded the attitude of large manufacturing firms at plus 11 points for the quarter of July-September, and the figure promises positive expectations in the future as the previous quarter had recorded. the sentiment of big players at minus 6.0 points.

The survey also showed that the companies are planning to raise their capital expenditure in the continuing business year which started from the month of April 2015 by 6.1 percent and this too is a positive indication as the previous poll had recorded the expected capital expenditure at 5.9 percent.

All these survey results do show a positive approach but that doesn’t mean that the Japanese economy has not been touched by the Chinese crisis, another index which assessed the business conditions for big manufacturers showed a slight decline for the quarter of October-December which indicates that a fall in Chinese demand will dent the Japanese economy.

An increase in the capital expenditure and wages form the crucial and integral part of the success of the reflationary policies of Prime Minister Shinzo Abe’s, termed as “Abenomics”, the policies aim to encourage the companies to invest more rather than concentrating on accumulating piles of cash, which sits idle and doesn’t contribute to improving the productivity of the economy.

The government is positive and hopes to prod the companies to increase capital expenditure and has called for a rare dialogue in the month of October and has invited private firms. In the previous year, the government had also intervened and coerced the companies to increase the wages of the employees.

On Friday, Akira Amari the Economics Minister told the reporters “We need to strengthen Japan’s domestic demand to offset any negative impact from overseas economies”.

He also added “From that perspective, we want to hold a public-private sector dialogue and one area we would look at is how companies are using their cash reserves”.

The current economic scenario in Japan may pressurize the policymakers to announce some fiscal and monetary decisions to encourage growth and give it a much-needed push. The economic growth does speculate a positive movement in times ahead but this recovery will be marginal as the Asian exports will remain sluggish.

For the purpose of calculating the index points of the survey, the surveyors take the difference between the percentage of companies which expect the business conditions to improve and the percentage of those who speculate it to worsen in relation to the previous quarter.