Japan Inc is singing the corporate blues again, with business confidence plunging amid growing worries over Europe’s debt crisis and a strong yen, a key survey said yesterday.
Japanese stocks lost 1.66 percent yesterday, weighed by the Bank of Japan’s (BOJ) latest Tankan survey and tracking overnight falls on overseas markets.
Large manufacturers’ sentiment this month dropped to a worse-than-expected “minus-four” from positive “two” in September, according to the quarterly survey.
The figures represent the percentage of companies saying business conditions are good minus those saying conditions are bad. The survey is taken into account by the BOJ when formulating monetary policy.
The latest reading was worse than the median forecast of “minus two” by economists polled by Dow Jones Newswires, and marked the first drop since the June survey, when the headline reading stood at “minus nine.”
“The data are the latest showcase of Japanese companies getting hammered by the strong yen and weakening overseas economic growth,” Mizuho Research and Consulting senior economist Norio Miyagawa said.
“The strong yen, if it persists, would make Japanese firms’ competitiveness against rivals overseas weaker and weaker, so it’s important that the government takes some bold action,” he said.
Among key sectors, sentiment among non-ferrous metals and electric machinery producers was most depressed, according to the survey.
However, the auto sector as a whole became more optimistic, moving to plus 20 from 13 in the September survey, despite voicing frustration over the high yen and the Thai floods as they recovered from Japan’s earthquake and tsunami in March.
In the previous survey in September, major firms expressed optimism because Japanese automakers had quickly recovered from heavy disruption to component supply chains and power networks caused by the double disaster.
Sentiment among large non-manufacturers improved to plus four this month from a reading of plus one in September, supported by private consumption.
“Domestic demand appears in a good shape,” Nomura Securities chief economist Takahide Kiuchi said.
“With an expected recovery in domestic auto production, the Japanese economy doesn’t look like derailing from a recovery track,” he said.
Looking ahead, large manufacturers expected business sentiment to further worsen to minus five in the next survey in March, while large non-manufacturers expect their sentiment index to fall to zero.
The central bank received valid answers from 98.9 percent of the 10,846 participating companies.