Confidence at major Japanese manufacturers marked its sharpest drop in 34 years, a key central bank survey showed yesterday, further evidence that the world’s second-largest economy may be headed for a deep recession as companies brace for more global turbulence.
The Bank of Japan’s tankan quarterly survey for this moth showed that its closely watched confidence index for large manufacturers at minus 24 — the steepest fall since February 1975.
That figure is the lowest level in since March 2002, when the index hit minus 38.
Japan Inc has grown increasingly pessimistic in the last the last three months amid slumping global demand, with major exporters including Sony Corp and Toyota Motor Corp slashing production, jobs and profit expectations. The yen’s surge to a 13-year high on Friday only adds to the pain by eroding exporters’ overseas earnings.
The latest number, largely in line with economists’ dire forecasts, was far worse than the minus 3 reading September survey.
The figure represents the percentage of companies saying business conditions are good minus those saying conditions are unfavorable.
The lower the number, the greater the pessimism.
“The result confirms that the economic downturn has gathered momentum,” said JP Morgan economist Miwako Nakamura, who highlighted that confidence fell more sharply among automakers.
Merrill Lynch economist Takuji Okubo said it was unlikely that the central bank would cut its key interest rate — already super-low at 0.3 percent — because that would discourage banks from lending.
The Bank of Japan’s (BOJ) policy board begins a two-day meeting starting Thursday.
“So as interest rates gets close to zero, there is really no incentive for people to trade in the money market,” he said. “So that’s why BOJ wants to keep at least some interest so that people keep trading.”
Instead, the Bank of Japan is likely to take other steps to pump more cash into the system to ease the growing credit crunch reflected in yesterday’s data, he said.
Major manufacturers in the latest tankan reported far tighter bank lending conditions from three month ago, with the index measuring lending attitudes down to minus 4 from 13.
The tankan survey — which polls more than 10,000 businesses — showed that decline in confidence hit small and medium-size companies even harder. Sentiment among small manufacturers and small non-manufacturers both tumbled to minus 29.
The confidence index for major non-manufacturers deteriorated to minus 9 from positive 1 in the September survey.
The central bank survey also showed that large companies downgraded their capital spending plans and now expect to cut expenditures by an average 0.2 percent in the fiscal year through next March.
Companies expect business conditions to deteriorate further in the months ahead.
The sentiment index for big manufacturers is forecast to drop to minus 36 in the next survey in April, while the figure for large non-manufacturers will likely fall to minus 14, the tankan showed.
Still, business sentiment remains above the lows hit during Japan’s previous recession, when the large manufacturers’ index plunged to minus 51 in December 1998.
Managers also said they expect an average dollar value of ¥103.32 (US$1.14) during the fiscal year, slightly higher than their previous estimate of ¥102.82.