The Japanese government warned on Tuesday the economy was "worsening rapidly" as a deepening recession hits jobs and incomes, sending consumer confidence to a record low. The bleak government assessment, the fourth downgrade in as many months in its outlook, comes as exports and industrial production, key engines of the world's second-biggest economy, slide at a record pace and force manufacturers such as Toyota Motor to slash production and cut jobs.
Economics Minister Kaoru Yosano said the global recession was hitting Japanese consumer sentiment. "They are tightening their purse strings... Every economic indicator of late has been pointing in a bad direction," Yosano told reporters after December figures showed the record low in consumer confidence. Weak consumption and the sharp declines in exports and production prompted the government to downgrade its assessment of the economy to "worsening rapidly", adding the word rapidly to an already downbeat outlook in previous months.
It said the economy could deteriorate further if the financial crisis deepened and stock and currency markets stayed volatile. There is no sign the economic gloom will let up. Figures on Thursday are expected to show exports in December dropped at a record pace of more than 30 percent from a year earlier, delivering a third straight monthly trade deficit. Economists warned of tough times ahead as the deteriorating economy hits consumers' wallets.
"Consumption has already been sluggish due to rising prices. Now that worries about job security and a possible decline in income are heightening, consumers may tighten their belts further," said Azusa Kato, economist at BNP Paribas. Thursday's figures, on the same day the Bank of Japan completes its latest monetary policy review, are likely to reinforce the view that Japan is in the midst of its longest recession on record.
Many economists expect the economy to keep shrinking at least until the first quarter of this year, marking four consecutive quarters of decline and the longest such slide on record. Such dire consumer sentiment weighs on domestic household consumption, which accounts for more than half of economic activity, at a time when Japan cannot count on traction from exports.
The Cabinet Office's consumer confidence survey showed the sentiment index for general households, which includes views on income and jobs, fell to 26.7 in December, the lowest since the survey began in 1982. It was down from 31.2 in September.
Seasonally adjusted figures are released only quarterly. The unadjusted monthly index also fell to a record low of 26.2 in December from 28.4 in November. Consumer sentiment on income conditions and job markets took a particular hit as news of companies cutting jobs has been making headlines almost daily in recent weeks.
The grim economic outlook overwhelmed any perceived benefit from a fall in oil prices, which had been the biggest concern for many Japanese consumers until last summer. "It's true some worrying factors for consumers, such as surging energy and food prices, are fading. But the escalating financial crisis was enough to worsen consumer sentiment," said Susumu Kato, chief economist at Calyon.