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Outlook low among Japanese firms as prices rise: survey

Sentiment among Japanese companies worsened to a record low during the January to March period as high materials prices and a strong yen ate into their profits, a government survey showed yesterday.

The dismal results add to the storm clouds surrounding the world's second-largest economy, with some analysts saying the Bank of Japan might be forced to ease monetary policy as soon as the first half of this year.

The large company business sentiment index -- which measures the percentage of companies saying that the economy will improve minus those saying it will get worse -- was at minus 9.3 in the first quarter. It was at plus 0.5 in the October to December period last year, the survey released by the Ministry of Finance and the Cabinet Office showed.

The sentiment index for mid-sized firms stood at minus 14.1; the same figure for small firms was minus 30.4.

The figures were the lowest since the ministry began using its current survey methods in the April to June quarter of 2004, reflecting concern about the impact of the US subprime problems on the Japanese economy.

Yet "actual business sentiment now may be worse than this survey since it was taken before the yen rose to very high levels," said Hideo Kumano, chief economist at Dai-ichi Life Research Institute.

The survey said that companies expected capital expenditure to drop by 9.4 percent in this fiscal year starting next month as profits fell by 2.9 percent last year.

Companies may also halt aggressive recruitment campaigns and cut wages gradually, sending already weak domestic demand into a tailspin.
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