Business sentiment at Japanese firms has worsened over the past three months as the nation’s economic malaise remains untreated, according to the Bank of Japan’s quarterly “tankan” survey released Thursday.The results underline the need for the government to quickly implement steps to boost domestic demand with an economic stimulus package and restore confidence in the banking sector through financial reforms.The September survey shows that the diffusion index — the percentage of firms that feel business is favorable minus those that feel it is unfavorable — for major manufacturers dropped to minus 51.The figure was 13 points lower than the minus 38 logged in the last tankan, released in June, and the lowest since the minus 56 recorded in the February 1994 report, the survey shows.Business confidence also dropped for major nonmanufacturers, for which the index fell from minus 28 in the June report to minus 36.Among these nonmanufacturers, construction firms’ business sentiment deteriorated considerably. The index for them was down from minus 52 in June to minus 61, the worst since the BOJ began to gather statistics for the industry in May 1981.In addition, the economic picture remains bleak for small and midsize enterprises, as diffusion indexes worsened for both manufacturers and nonmanufacturers.The index for small manufacturers dropped to minus 57 from the June survey’s minus 49, the lowest figure since the minus 51 logged in May 1975, while small nonmanufacturers’ confidence declined from minus 42 to minus 44, the lowest figure for the group.Of the 18 industries in the small enterprises group, eight sectors, including textiles, processed metals, real estate and transportation, marked the lowest figures ever, the survey shows.As for projections for the upcoming December tankan, indexes for major firms showed improvement to minus 46 for manufacturers and minus 31 for nonmanufacturers, up 5 points for both groups.The diffusion index on employment registered 25 for major firms and 20 for smaller enterprises — up four points for major firms and three for smaller ones compared with the June survey. The figures were forecast to fall to 24 points for major firms and 18 for smaller enterprises in the December tankan.Shosaku Murayama, head of the BOJ’s Research Statistics Bureau, said the plunge in business confidence at the nation’s companies reflects a further slump in domestic demand as well as their concerns over the ailing financial system. “Indexes for major firms’ business sentiment dropped again to the 1994 level,” he said. “As for corporate finance, it can be said that the credit crunch has further deteriorated.”Although slight improvements are expected in the business sentiment of major corporations for December, smaller firms have few positive prospects, he said.Masaru Takagi, a professor of economics at Meiji University, voiced concern that the “devastating” result of the latest survey may undermine an economic recovery. “Considering that the June projection for September obviously missed its mark, the current estimate for December may also prove worse than expected,” he said.Takagi blamed the government’s slowness in designing financial reform measures, especially a delay in resolving the problem of the Long-Term Credit Bank of Japan.

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