Japanese business confidence plummets to six-year low

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(Agencies)
Updated: 2008-12-16 08:14

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 December showed its closely watched confidence index for large manufacturers at minus 24 - the steepest fall since February 1975. That figure is the lowest level since March 2002, when the index hit minus 38.

Japan Inc has grown increasingly pessimistic in 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 in a 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's 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 policy board begins a two-day meeting starting on Thursday.

"So as interest rates get 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 months ago, with the index measuring lending attitudes down to minus 4 from 13.

Japan's economy has already contracted for two straight quarters - the definition of a recession - and the slowdown is worse than first thought. The economy shrank at an annual pace of 1.8 percent in the third quarter, down from the initial estimate of a 0.4 percent contraction.