Recession Looming

For the first time since the start of Shinzo Abe administration, views on economy showed a clear different between the executive branch of Japanese government and Bank of Japan. While the President of BoJ, Haruhiko Kuroda, maintained his comment on economy as healthy, the Cabinet Office indicated recession of Japanese economy. Before achieving the goal of targeted inflation, the central bank is isolated.

In the press conference after the decision making meeting of BoJ on Tuesday, Kuroda showed his recognition on Japanese economy as maintaining positive circulation of income and spending. In addition, he boasted that cheap yen reaching to the rate of ¥110 equivalent to ¥1 would be preferable for Japanese economy. Although the attitude toward monetary easing between Japan and U.S. Federal Reserve Board has been showing distance, Kuroda kept his optimism that the foreign exchange rate precisely reflected the situation of economy.

But wind against Kuroda is blowing from business leaders. “Further decline of Japanese yen is not preferable for Japan as a whole,” told President of Keidanren, Sadayuki Sakakibara, worrying negative impact on procurement from overseas or weaker consumption already damaged by tax hike this spring. While the exchange rate had been moving between ¥101 and ¥103 per one dollar from February to August, it abruptly jumped to around ¥110 in September. Sakakibara did not hide his anxiety, saying “It was a great change within a month.”

The pessimism in business was reflected in digits. Economic Trend Index in August marked 108.5, based on 100 in 2010, 1.4 points down from previous month. The assessment of Cabinet Office declined from “standstill” in July to “indicating downward change.” Economists in markets analyzed that it had been possible for Japanese economy to have stepped into recession, marking its peak in January of this year. Newspapers raised large headlines of “Aspect of Recession Possible.”

Prime Minister also expressed negative views on economy. “It is appeared that cheap yen has demerit on families and small or midsize businesses,” told Abe in the discussion in the Diet. Abenomics has been carried with close cooperation between Kuroda and Abe. However, skepticism on Kuroda is growing inside the administration. Kuroda’s positive opinion on further tax hike for next year is seen as a supportive comment for Minister of Finance, where Kuroda has long been affiliated to. Economic team of Abe is in jeopardy of breaking up.