Japanese business confidence registers biggest fall since 1975
15 Dec 2008
Tokyo: Confidence among Japanese businesses has taken a steep dive, tumbling at its fastest rate for more than three decades in the last quarter. The collapsing business confidence may be an indicator that recession in Japan may be the worst since the economic bubble burst in the 1990s.
In its quarterly Tankan survey, the Bank of Japan (BoJ) said the confidence index among major manufacturers had plummeted from minus 3 to minus 24 in the three months to December. This is the survey's biggest drop since February 1975. The confidence levels had stood at minus 38 in early 2002.
The survey does a poll of more than 10,000 firms and measures the percentage of firms that think business conditions are good versus those that think they are bad.
The drop is being attributed to the sharp rise of the yen and the global financial crisis, which have severely impacted Japanese car and electronics makers, the mainstays of the export sector.
The Bank of Japan has also warned that the economy could continue to shrink for at least another year. Speculation is afoot that the BoJ may slash interest rates again, to near zero, to revive the economy.
The bank's Tankan survey paints a bleak picture, saying Japan Inc now expects earnings to tumble almost by a quarter next year, hit by weak demand and appreciation of the yen to a 13-year high against the dollar.
The Tankan results, according to economy observers, confirm that the ongoing recession was likely to surpass the downturn fuelled by the IT collapse in the early 2000s or even the oil shock of the 1970s and the realty bubble of the 1990s.
Big Japanese manufacturers expect a 24.2 per cent slump in pre-tax profits in the current financial year to March, the survey showed.
Some analysts believe the BoJ will be forced to cut its interest rates again from the current level of 0.3 per cent to about 0.1 per cent by early next year.
Meanwhile, Japan's central bank chief warned that his country's economy, Asia's biggest, may contract in the next fiscal year starting in April. "The global economy has changed a lot," BoJ governor Masaaki Shirakawa was quoted as saying by the Financial Times in an interview. "I think the economy for fiscal year 2009 may turn negative."
