TOKYO- Japan’s new Economy Minister Yoshitaka Shindo said on Thursday that positive signs were emerging in output gaps and other areas for the economy to escape deflation.
However, Shindo told his inaugural press conference that those signs must gather strength before declaring victory over deflation, a cycle of persistent price declines that stunts economic growth.
“It’s important to achieve private demand-led growth and exit from deflation,” Shindo said, echoing the resolve expressed by Prime Minister Fumio Kishida a day earlier.
Asked whether the end of deflation is prerequisite for phasing out monetary stimulus, Shindo declined to comment on monetary policy.
Shindo replaced Shigeyuki Goto as economy minister in a cabinet reshuffle on Wednesday and will play a pivotal role in compiling the new economic package.
“I want to make it bold,” he said.
The new package could further strain a public debt burden that is running at more than double the size of the economy, the world’s third largest and the heaviest among industrialized nations.
“The primary balance target can be met by putting the economy on track for growth … We must achieve both growth and fiscal reform,” Shindo said.
Kishida said on Wednesday that he would order his cabinet next month to compile a new economic package to ease the pain of rising fuel and other living costs, and to craft a supplementary budget to fund it at an appropriate time.
However, Kishida’s aim of balancing a primary budget by the fiscal year end in March 2026 could become even more elusive.
Little is known about Shindo’s views on monetary and fiscal policies as served in for the past eight years an intra-party post for the past eight years.
But he is regarded as having been close to the late former Prime Minister Shinzo Abe, who swept to power in late 2012 pledging to revive a moribund economy with his “Abenomics” recipe of bold monetary easing, flexible fiscal spending and growth strategy.
Meanwhile, confidence at big Japanese manufacturers fell the most in eight months, while morale in the services sector also slumped on worries a slowdown in China’s economy could be a bigger drag on growth globally and at home, a Reuters poll for September showed on Wednesday.
The gloom across the business sector underlines the challenge for Japanese policymakers and raises doubts that exports could fuel an economic recovery in the face of weak domestic demand.
The Reuters Tankan monthly poll of 502 big manufacturers, showed a sharp fall in the sector’s sentiment index to plus 4, from plus 12 in August. That was the biggest drop since January when the index declined 14 points.
The survey, which drew 248 responses during Aug. 30-Sept. 8, serves as a leading indicator for the Bank of Japan’s closely watched quarterly tankan survey due on Oct. 2, and also provides a quick health check of business conditions for the BOJ’s upcoming policy-setting meetings.
In written comments, many Japanese firms complained about elevated input costs of raw materials as well as weak demand at home and abroad. The Ukraine war and heightened Sino-US tensions were also seen as headwinds.
“Our business conditions are not so good due to uncertainty surrounding the global economy such as geopolitical risks stemming from a prolonged war in Ukraine and rising tension between US -China frictions,” a machinery maker manager wrote in the survey.
“Overseas markets, particularly in China, are slumping and domestic demand is also languishing,” a chemicals maker manger wrote on condition of anonymity.
Compared with three month ago, the manufacturers’ sentiment index — calculated by subtracting the percentage of pessimistic respondents from optimistic ones — was down four points and suggests decline in the quarterly tankan survey.
A positive figure means optimists outnumber pessimists.
The Reuters Tankan non-manufacturers index also dropped nine points to hit plus 23 in September from the previous month, the biggest decline since May 2020, the survey showed.
On the quarter, the service-sector index was down one point from June, pointing to a slight decline in the BOJ’s quarterly tankan.
The outlook indexes also suggested business conditions may remain challenging for the rest of the year. The business sentiment over the coming three months showed the manufacturers’ index flat in December and the service-sector index slightly down at plus 21 at year-end.
