Business, consumer confidence down in Jan. ahead of sales tax hike

Japanese consumers and workers with jobs sensitive to economic trends have become wary of the future course of the country's economy ahead of the 3-percentage-point sales tax hike to 8 percent in April, government data suggested Monday.

The diffusion index of how so-called "economy watchers" -- such as taxi drivers and restaurant employees -- expect the economy to perform in the coming few months plunged 5.7 points from December to 49.0 in January, falling for the second month in a row and below the threshold line of 50 for the first time since November 2012, the Cabinet Office said.

The decline was the sharpest since March 2011, when the 9.0 magnitude earthquake and ensuing tsunami ravaged northeastern Japan, sparking widespread fears about the world's third-biggest economy, an official at the office said.

The diffusion index of sentiment over the nation's current economic situation dropped for the first time in three months, down 1.0 point to 54.7, the government said in a monthly survey.

The index is based on whether respondents believe economic conditions have improved or worsened over the past three months. A reading of 50 indicates that those polled generally believe economic conditions are flat.

The government left its assessment of the survey unchanged, saying it suggests the economy "has been moderately recovering." But the office added, "A negative reaction following a rush in demand prior to the consumption tax hike is likely."

The Cabinet Office surveyed 2,050 workers across Japan from Jan. 25 to 31, of whom 1,875, or 91.5 percent, responded.

Another survey released by the office Monday showed the seasonally adjusted index of sentiment among households made up of two or more people fell 0.8 point from a month earlier to 40.5 in January, down for the second straight month. Readings below 50 indicate pessimists outnumber optimists.

In the sentiment survey, consumers were asked about the outlook for the coming six months.

In January, three of the index's four components slid, although consumers' view of employment conditions rose 1.1 points to 49.3.

Consumers' near-term readiness to buy new durable goods declined 3.6 points to 36.4, after it decreased 3.1 points in December. Their assessment of income growth went down 0.4 point to 38.6 and that of livelihoods fell 0.3 point to 37.5.

The survey, meanwhile, showed that 89.4 percent of households expect consumer prices to rise in the year ahead, up 1.0 point from the previous month.

The government left its basic assessment of the index intact, saying consumer sentiment is "leveling off."

The consumer survey conducted on Jan. 15 covered 8,400 households and valid responses were received from 5,676 households.