Japan Inc sees no turnaround soon for economy likely in recession

By Tetsushi Kajimoto and Izumi Nakagawa

TOKYO (Reuters) - Most Japanese companies do not expect the nation's flagging economy to recover until well into next year at the earliest, as a China-led slowdown keeps overseas demand weak and consumer spending at home remains sluggish, a Reuters survey showed.

The results for the Reuters Corporate survey, which contrast with the government's stance that the world's third-largest economy is managing a moderate recovery, come shortly ahead of data on Monday that economists expect will show it falling into recession.

On a positive note, however, companies indicated that investment plans for the second half of the financial year ending in March were intact and that wages will climb next year.

Prime Minister Shinzo Abe hopes Japan Inc will take on the burden of kicking the economy into higher gear through pay raises and capital spending, after the government implemented bold monetary easing and fiscal stimulus.

Asked when they expect Japan's economy to be clearly recovering, only 29 percent of firms chose timeframes within the next six months. Overall, 53 percent said within a year while the remainder said it would take longer than a year.

"With China and Asia slowing and domestic demand weakening, many firms cannot find a reason to think the situation will improve quickly," said Taro Saito, senior economist at NLI Research Institute, who reviewed the poll results.

In the survey, conducted Oct. 26-Nov. 6 for Reuters by Nikkei Research, nearly 60 percent of firms said they would like the government to craft a supplementary budget to boost the economy - which authorities have said is likely.

A major reason for the downbeat tone was the outlook for China, with nearly three-quarters of companies saying they expected an economic slowdown in Japan's biggest trading partner to last more than a year.

"It's like they've taken their foot off the accelerator and they're just coasting along," a manager at a wholesale firm wrote of China's economy.

The survey polled 514 big and medium-sized firms, of which around 250 answered questions on Japan's and China's economic outlook. Managers respond on condition of anonymity.

Among manufacturers, 44 percent said they were undershooting their business targets due to China's economy, up from 35 percent who responded similarly in September's survey. In sectors like autos, precision equipment and steel, that proportion rose to a majority of companies.

Key concerns were a reduction in Chinese output of smartphones, slowing sales of cars and Japanese firms cutting back on their investment plans for China.

Eighty percent of firms said, however, that their capital spending plans for the second half of the financial year remained intact.

While some firms said the plans were in response to increased orders and new product launches, others said they were sticking to their estimates because they had only planned to do the minimum investment necessary.

The Bank of Japan's latest tankan survey showed companies plan to lift capital spending 6.4 percent this financial year although this rises to 10.9 percent when just big companies are polled.

The Reuters Corporate survey showed 78 percent of firms are planning to raise wages next year by as much as they did this year.

This year, big firms agreed to an average wage hike of 2.38 percent - a 17-year high. Including employees at small firms and part-timers, however, overall wage growth has hovered around 0.6 percent.

(Reporting by Tetsushi Kajimoto and Izumi Nakagawa; Editing by Edwina Gibbs)

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