- Capital Economics
Manufacturing conditions in Japan deteriorated in the first quarter of the year, indicating the world's third largest economy may have slipped back into recession this quarter. A predicted drop in sales and profits was the main driver behind Japan's factory sector contraction this quarter, increasing possibility that policy makers would loosen policy in the coming months. The Business Survey Index of large-scale manufacturers plummeted from 3.8 in the December quarter to -7.9 this quarter, the lowest level since the June 2014 quarter and much weaker than the expected index reading of 4.2. An index level above zero signals an expansion in factory activity, while a reading below zero indicates a contraction. Most manufacturers saw a sharp deterioration in domestic economic conditions this quarter, the Ministry of Finance reported. Nevertheless, employment levels managed to climb. Factories anticipate to see a 13.6% fall in profits for the second half of the current financial year, and a 1.8% decline in sales over the same period. However, capital investment is predicted to pick up 9.3% over the same horizon.
The Japanese economy contracted 0.3% last quarter after consumer spending dropped. Fundamentals so far for the March quarter suggest the economy might have slid back into recession.
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