Japanese economy exits recession, business sentiment upbeat

19 February 2015

Japanese business sentiment perked up in February with further improvement expected, according to a Reuters poll today.

According to commentators, the development underlined the economy's gradual recovery from a slump although companies continued to be cautious about sluggish demand.

The Reuters Tankan, which closely tracked the Bank of Japan's key tankan survey supported the week's GDP report that confirmed the economy had exited recession, although annualised growth continued to lag forecasts reflecting a hangover from a sales tax hike last year.

The slump in oil prices is likely to have a positive impact on the resource-poor country, but many firms continued to struggle with higher import costs stoked by a weak yen.

Thanks to the weak yen, exporters of cars and electronics had reaped a windfall profits, helped by solid demand from the US and Asia.

The gains had, however, been limited to large manufacturers in certain sectors.

The managers, who responded to the Reuters poll, complained that private consumption lacked strength even as the effects of the tax hike continued and the subdued external demand.

Meanwhile, AP reported that the recovery from six months of contraction was weaker than forecast.

The world's No. 3 economy had for most of last year stagnated, neither shrinking nor expanding as the recession, which was triggered by a sales tax hike in April, nullified the growth seen at start and end of the year. Wages were down 0.1 per cent.

According to experts, the economy's performance this year would be on similar lines despite the government and the Bank of Japan's herculean efforts to end two decades of malaise.

According to Marcel Thieliant of Capital Economics, the weakness in domestic demand supported the view that output would be essentially flat this year.

The lacklustre data highlighted the challenges prime minister Shinzo Abe faced as he struggled to guide the country back to a sustainable level of growth, restore Japan's competitiveness.

The Japanese economy, which continued to be weak, following the global financial crisis had not helped support global growth, though its imports from the rest of Asia were aiding Southeast Asian nations.

According to a recent report by the World Bank the downward revisions in its global projections could be attributed to weakness in Europe and Japan.

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