Confidence among Japanese executives has stalled and looks set to fall next year after two years of steady gains, a closely watched central bank survey showed today, signaling a slowdown in Japan's tepid recovery.
The main index in the Bank of Japan's quarterly survey, known as the tankan, showed confidence among large manufacturers at 10, unchanged from the previous reading in September and slightly worse than what economists had expected.
The index measures the percentage of companies that say business conditions are good minus those that say they are bad. A positive number means optimists outnumber pessimists. The survey, however, also found that executives expect sentiment to fall in the next tankan in March, which would be the first decline in two years.
"At the very least, the momentum is peaking out," said Peter Morgan, senior economist at HSBC Securities. "Whether we are going into recession is less obvious."
Economists said the survey of 9,010 companies, taken from Nov. 10 to Dec. 12, confirmed that an export-driven flurry of manufacturing activity was tapering off, while consumer spending, a major driver of the economy, continues to languish.
They said that the tankan showed capital spending still strong but that this would probably be scaled back in the next survey.
Finance Minister Kiichi Miyazawa said the result was no different from the government's own view.
"The tankan shows that company managers have a cautious outlook for the economy to next March," Mr. Miyazawa told reporters. "That is the same view the government has."
In another closely watched figure, the survey found big companies planned to increase spending on plant and equipment by 7.6 percent in the year to next March, revised up from a 6.0 percent rise in the previous tankan. That was the highest level for the December tankan since fiscal 1990, the Bank of Japan said.
Many economists say capital spending could be plowing ahead too fast given the increasingly grim outlook both at home and abroad.
"Capex expectations are very likely to be revised down in the next survey," said Ron Bevacqua, senior economist at Commerzbank Securities in Tokyo.
Japan's recovery has been led by rising corporate profits and capital spending on strong demand for information technology products, but a long-awaited recovery in personal consumption -- the biggest share of the economy -- has not occurred.
Economists said of particular concern was a drop in the index for big manufacturers of electrical machinery, whose profits have bulged from the global high-technology boom but who face uncertainty as American computer chip companies sound warnings on profits.
Still, most analysts doubted that the tankan would prompt the central bank to change course, and lower interest rates.
"A return to a zero-rate policy would require an economic collapse not just a cyclical slowdown and today's tankan just confirms a cyclical slowdown," said Hiromichi Shirakawa, chief economist at UBS Warburg in Tokyo.