Diaoyu tension takes toll on Japan's economy

Japan did not seem to worry about its economic ties with China when the political front was frigidly cold during the five-and-a-half years of Junichiro Koizumi's premiership.

When Koizumi was at the helm of Japanese politics between 2001 and 2006, it became a cliche that while economic ties with China were red hot, top-level contacts between the two governments were frozen.

This has not been the case since Japan's illegal "purchase" of China's Diaoyu Islands in September.

The flare-up in political tensions between the two countries over the islands has had an effect on Japan's economy. As many Chinese people shun Japanese products, this is dealing a blow to Japanese exporters.

Slowing global growth and tensions with China are nudging the world's third-largest economy into recession.

After a two-day policy meeting, the Bank of Japan said on Tuesday the European debt crisis, an unsteady US economic recovery and the dispute with China have all weighed on Japan's prospects.

"Japan's economy is expected to remain relatively weak for the time being," it said, adding that "there remains a high degree of uncertainty".

The bank's policy board voted unanimously to hold rates between zero and 0.1 percent, saying the economy "has been weakening somewhat" because of a slowdown in exports and factory output.

Machine tool orders received by Japanese manufacturers in October dropped 6.7 percent year-on-year to 94.31 billion yen ($1.16 billion), the smallest monthly total so far this year, the Japan Machine Tool Builders' Association reported on Monday. Slowing demand at home as well as in Asia and Europe dented orders.

A prolonged slump in sales of Japanese vehicles in China will harm investment plans for the country by automakers and their suppliers, Motohiko Yokoyama, chairman of the association, was quoted by Japan's Jiji Press as saying.

In October, Japan's largest carmakers saw demand in the Chinese market virtually halve year-on-year in the wake of Chinese consumers' boycott of Japanese products, prompting some to revise downward their fiscal earnings projections for 2012.

Nissan Motor Co was among the most badly affected manufacturers, as it has the highest exposure to China and generates roughly 30 percent of its global sales in the world's largest auto market.

Nissan has projected that the dispute will cost it roughly 60 billion yen in consolidated operating profit in the current business year, lowering its global sales target to 5.08 million units from 5.35 million units.

At a recent news conference, however, Toshiyuki Shiga, Nissan chief operating officer, said the company does not plan to alter its current investment plan, but he didn't exclude the possibility of rethinking investments in China at some point down the road.

Despite the woes of Japanese carmakers such as Nissan and Honda, industry heavyweights are unlikely to downplay the importance of establishing a strong presence in China.

Osamu Masuko, Mitsubishi Motors Corp president told a news conference that it is "impossible to completely avoid doing business in China", adding that the company has no plans to reduce its presence in the country.

Despite Chinese consumers' boycott of their vehicles, Japanese carmakers have booked large space for their new products at the Guangzhou Auto Show, which is to open on Nov 23.

The ongoing row over the Diaoyu Islands has also had a severe effect on Japan's travel industry.

The number of Chinese visitors to Japan plunged 33.1 percent year-on-year to an estimated 71,000 in October, the Japan National Tourism Organization said on Friday.

A survey conducted by the Japan Association of Travel Agencies found that the number of Japanese people who planned to visit China in the three months from October nosedived more than 70 percent compared to the same period last year.

For seven travel agencies in Japan, including JTB Corp and Kinki Nippon Tourist Co, bookings for package tours to China dropped by 72.5 percent in October, 75.8 percent in November and 71.5 percent in December compared with the same periods last year. The actual number of Japanese people who went on tours to China in September fell 44.5 percent due to cancellations.

Japan's travel agencies said the country's holidaymakers are booking more places at US and European resorts than in neighboring countries such as China and the Republic of Korea during the upcoming nine-day New Year holidays.