Japanese companies' business confidence has plunged sharply and may continue to worsen in the coming months, according to the Bank of Japan's quarterly "tankan" survey released Thursday.
The growing pessimism appears to reflect a vicious circle of prolonged sluggishness in consumption, which in turn hurts corporate activity and employment. This is worsened as firms are having difficulty borrowing money from banks.
The diffusion index for major manufacturers continued to fall from December's rating of minus 11 to minus 31 in the latest report. The plunge to minus 31 leaves the index at its lowest level since August 1994, when it stood at minus 39. Diffusion indexes are calculated by subtracting the percentage of firms that believe current business conditions are unfavorable from those with a positive outlook.