Japanese manufacturers more concerned as export demand sags

Big Japanese manufacturers have become more concerned as negative outlook in China and Europe cut export demand, pushing the country further towards economic contraction.

The quarterly Tankan index (the Bank of Japan's quarterly survey of companies, which provides a wide range of corporate data) for large manufacturers retreated in September to minus 3 from minus 1, the fourth negative reading, the Bank of Japan said today in Tokyo. A negative figure indicates more number of pessimists than optimists.

The report today follows data last week that showed a second monthly decline in industrial production in August, and according to Credit Suisse Group AG, Japan's economy probably shrank in the third quarter. With consumer prices still slipping the Bank of Japan, might need to go for a stimulus again this month as it is not on track for hitting its 1 per cent inflation target.

Analysts say Japan's economy would probably have two consecutive quarters of contraction in the July-September and October- December periods. They add, exports are the main reason for the economic contraction.

Shipments are down for three months, falling 22.9 per cent in August to the EU and 9.9 per cent to China. According to finance minister Jun Azumi, economic conditions in Japan's main export markets were very unstable.

Growth prospects seem further remote as the standoff over disputed islands continues between Japan and China. The crisis has hit the  $340-billion trade relationship between Asia's two largest economies, leading to cancellation of 40,000 seats on All Nippon Airways flights, while Toyota Motor Corp and Nissan Motor Co cut production in China.