Business sentiment at Japan’s principal manufacturers worsened over the past three months despite the government’s announcement of a record 16 trillion yen economic stimulus package.

In addition, results of the Bank of Japan’s quarterly “tankan” survey, released Monday, underline the need for the government to quickly implement steps to boost domestic demand and restore confidence in the banking sector.

The tankan for June shows that the diffusion index — the percentage of firms that felt business is favorable minus those that felt business is unfavorable — for major manufacturers dropped to -38.

The figure was seven points lower than the -31 logged in the survey for March, and the lowest since the -39 recorded in the August 1994 BOJ tankan.

Business confidence stayed almost flat for major nonmanufacturers, for which the index improved from -30 in March to -28. This was seen as a result of the rise in the confidence of retailers, which saw their index of -66 in March improve to -46.

But the economic picture remains bleak for smaller enterprises, as diffusion indexes worsened for both manufacturers and nonmanufacturers. The index for smaller manufacturers dropped to -49 from the March survey’s -38 — the lowest figure since the -51 logged in May 1975 — while the smaller nonmanufacturers saw confidence decline from -37 to -42, the lowest figure since the BOJ began checking this group in May 1978.

As for projections for the upcoming September tankan, indexes for major firms showed improvement to -34 for manufacturers and -23 for nonmanufacturers.

However, business sentiment at smaller companies was expected to deteriorate further, with manufacturers’ September diffusion index forecast falling to -53 and the figure for nonmanufacturers dropping one point to -43.

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