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Japan central bank survey finds corporate outlook cautious, capital spending to fall

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TOKYO — Japanese businesses remain wary over the outlook for the world's No. 3 economy and generally plan to reduce capital investment, according to a central bank survey released Wednesday.

The Bank of Japan's quarterly "tankan" survey will likely reinforce the conviction among many that more stimulus is needed to sustain growth as Japan struggles to escape from more than two decades of stagnation.

The leading measure of business sentiment, based on a survey of 11,126 companies of various sizes, showed more than two-thirds of all companies anticipate further deterioration in conditions, with 83 percent of large manufacturers branding conditions "not so favorable" or "unfavorable."

Japanese businesses anticipate weak demand both at home and overseas for their products and higher costs for materials thanks to the weakening Japanese yen.

PHOTO: FILE - In this Jan. 14, 2015 file photo, people walk on a pedestrian crossing in Tokyo. Japanese businesses remain wary over the outlook for the world's No. 3 economy and generally plan to reduce capital investment, according to a central bank survey released Wednesday, April 1, 2015. (AP Photo/Shizuo Kambayashi, File)
FILE - In this Jan. 14, 2015 file photo, people walk on a pedestrian crossing in Tokyo. Japanese businesses remain wary over the outlook for the world's No. 3 economy and generally plan to reduce capital investment, according to a central bank survey released Wednesday, April 1, 2015. (AP Photo/Shizuo Kambayashi, File)

The economy emerged from a half-year recession last year following a sales tax hike that dented consumer and corporate demand. But growth has remained weak.

The latest tankan shows companies plan to reduce capital spending by nearly 5 percent in this fiscal year, which ends March 31, 2016. The companies expect to cut spending on land purchases by nearly 37 percent.

The central bank has been pumping trillions of yen (tens of billions of dollars) into the economy through asset purchases aimed at keeping interest rates low and stimulating inflation. Prime Minister Shinzo Abe and others in his government say they expect the strategy to stimulate a "virtuous cycle" of spending and investment.

BOJ Gov. Haruhiko Kuroda expanded those purchases last fall to counter the recession, and is facing calls for still more stimulus. But Kuroda and many other economists say monetary easing and government spending alone cannot fix Japan's problem with weakening demand, due to its aging and declining population.

The reflationary efforts have weakened the yen, driving up costs for imports of food, energy and many industrial components and materials used by manufacturers. Those rising costs, along with the 3 percentage-point tax hike a year ago, have so far undermined purchasing power without stimulating a rush to spend more.

Annual labor negotiations wrapped up last month with larger-than-usual wage increases for union employees of many of the largest companies, but overall they account for a minor share of the workforce, and incomes have continued to fall over the past several years.

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