Japanese business sentiment hits four-year low: poll

AFP , TOKYO

Tue, Jun 24, 2008 - Page 10

Sentiment among top Japanese executives has slumped to the worst level in at least four years, a government survey showed yesterday, adding to concerns about the outlook for Asia’s largest economy.

The souring sentiment comes as firms struggle to cope with the rising cost of energy and raw materials, a weaker global economy and a stronger yen, which is bad for overseas earnings.

The index of sentiment among large Japanese firms slumped 5.9 points in the second quarter from the previous quarter to minus 15.2, a survey of 14,980 firms by the finance ministry and the Cabinet office showed.

The index fell for a third straight quarter, hitting the lowest level since comparable records began four years earlier.

Sentiment among large manufacturers fell 2.2 points to minus 15.1 while the index for big non-manufacturers plunged 8.1 points to minus 15.3.

The index represents the percentage of firms reporting improving business conditions minus that of companies reporting worsening conditions.

Executives, however, are hopeful of an improvement in the business environment through the rest of the year.

The index of business conditions among large companies is expected to rise to 3.7 points in the third quarter and to 5.7 points in the final three months to December, the survey showed.

Japan’s corporate sector has been a key driver of the recovery in the world’s second-largest economy after a decade-long slump.

Helped by a weak yen and brisk exports, companies have racked up record earnings in recent years and invested heavily in new equipment and factories.

But many firms are now looking to scale down capital spending to cope with an expected drop in earnings, raising fears Japan’s economic recovery could stall temporarily.

The combined pretax profits of companies in all industries is forecast to drop 2 percent in the current fiscal year to next March, the survey showed.

Firms plan to cut investment in new plants and equipment by 0.9 percent this year, although that is better than the 9.4 percent drop they had predicted three months earlier.