More bad news on cards for Japanese salarymenSlumping profits at Japanese manufacturers from robots to cosmetics threaten to weigh on investment and wages, adding to the likelihood of recession after the economy probably contracted last quarter.
GDP shrank an annualized 3.4 percent in the three months through September, according to the median estimate of 17 economists surveyed by Bloomberg News. That would be the steepest decline since the earthquake-affected first quarter of 2011. The data is due on Monday.
The economy’s decline mirrors an aggregate 34 percent drop in net income at the 171 companies listed on the Nikkei 225 stock average to report July-September earnings through yesterday, according to data compiled by Bloomberg.
Japanese machinery orders fell more than estimated in September, separate data showed today, while a boost in payrolls in Australia and rising unemployment in New Zealand highlight the diverging fortunes of economies in the region.
“Today’s data show Japan’s economy is probably in a recession,” said Tatsushi Shikano, a senior economist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo. “Widespread deterioration in corporate profits is taking its toll on capital spending and there is nothing to suggest a firm recovery is coming back soon.”
The 4.3 percent decline in Japanese machinery orders, an indicator of capital spending, compared with the median forecast for a 2.1 percent drop in a survey of economists by Bloomberg News. The nation’s current account surplus was 503.6 billion yen ($6.3 billion) in September, the narrowest for the month since at least 1985, separate data showed today. On a seasonally adjusted basis, the nation posted its first current account deficit on record.
Nomura Securities, Goldman Sachs Group and JPMorgan Chase cut their third-quarter GDP forecasts last week after September exports dropped and industrial production fell the most since last year’s earthquake. Nomura expects the deepest decline - an annualized 5.1 percent contraction - while all three see GDP shrinking again in the fourth quarter.
In other global releases today, the European Central Bank will probably leave its benchmark interest rate at a record low of 0.75 percent and President Mario Draghi will speak to reporters. The Bank of England decides monetary policy, Greece reports unemployment for August and Germany and the U.K. release trade data for September.
The Bank of Japan remains under pressure to add to monetary stimulus after it expanded its asset-purchase program for the second time in two months last week. Some BOJ board members said in an Oct. 4-5 meeting that the economy may have entered a “recessionary phase,” the minutes of the meeting showed.
Prime Minister Yoshihiko Noda’s room for fiscal maneuvering has been limited by the political opposition’s refusal to give his administration the authority to borrow to pay for this year’s deficit. On Oct. 26, the government said it would tap discretionary funds to pay for 750 billion yen in fiscal stimulus.