Tankan likely to indicate increased jitters in Japan

A central bank survey of corporate Japan is expected to show top executives grew more cautious in the fourth quarter due to worries about the health of the global economy and rising costs, analysts said.

Jitters about the US subprime mortgage crisis and a stronger yen are expected to be reflected in the results of the Bank of Japan's quarterly Tankan survey, due to be published today, they said.

Faced with a deterioration in the business climate, companies may scale back their profit forecasts and restrain, or even lower, planned capital investment in new equipment and factories, analysts predicted.

"The forthcoming Tankan survey is likely to underscore a weakening of the growth momentum of the Japanese economy," said Mamoru Yamazaki, chief economist for RBS Securities in Tokyo.

The corporate sector has been a key driver of Japan's recovery from a slump stretching back over a decade, while the BoJ held rates steady for the eleventh straight meeting in November and economists say another rate hike is unlikely any time soon.

Falling confidence

Economists predict, on average, that the headline index of business confidence among big manufacturers will show a fall to 21 in December from 23 in the September Tankan survey of more than 10,000 companies.

Forecasts of a similar drop three months ago proved overly pessimistic with business confidence holding steady.

A positive reading means confident firms outweigh the pessimistic ones. A figure of 21 would indicate generally upbeat sentiment, although less than a year ago when the index hit a two-year high of 25.

Confidence among big non-manufacturers is also expected to have fallen.

"Business sentiment was hit hard by the deterioration of consumer sentiment due to rises in gasoline and food prices," said Daiwa Institute of Research economist Masahiko Hashimoto.

Confidence among Japanese consumers sank to its lowest level in four years in November amid concern about poorer economic conditions, employment and rising prices of food and other goods, the government said earlier this week.

Economists are also expecting a worsening of business sentiment among smaller companies, which employ most of Japan's workforce, due to higher procurement costs and sluggish domestic demand.

"Small-sized companies, which face difficulties in raising delivery prices due to concerns about the impact on sales, are feeling stronger downside risks for their profits than leading companies," Mizuho Research Institute senior economist Yasuo Yamamoto said.

Investors are keen to see whether the downturn in business confidence caused by worries about profits has had any impact on fixed-asset investment plans.

Agencies

(China Daily 12/14/2007 page16)