Japanese firms grew more pessimistic over the past three months and see no end to the nation’s economic woes, according to the Bank of Japan’s quarterly “tankan” business sentiment survey for December.

The central bank’s latest survey, released Monday, appears to contradict a more optimistic observation aired last week by the Economic Planning Agency, which said in a monthly report that there are signs the economy may begin to pick up in the not-so-distant future.

The dismal tankan is expected to add further pressure on the government to quickly implement steps to boost domestic demand that are included in its economic stimulus package and restore confidence in the banking sector through financial reforms.

The December tankan shows that the diffusion index — the percentage of firms that feel business is favorable minus those that feel business is unfavorable — for major manufacturers dropped to minus 56, down 5 points from minus 51 in the September survey, reaching the level last recorded in February 1994.

Business confidence also dropped for major nonmanufacturers, for which the index fell from minus 36 in the previous survey to minus 41, the lowest figure since minus 42 was logged in May 1994, the results show.

Among major nonmanufacturers, business sentiment in all industries posted negative figures except for the electric sector, which registered no change from the last survey, the results show.

In addition, the economic picture remains bleak for small and medium-size enterprises, although the business sentiment index slightly improved for small nonmanufacturers.

The index for small manufacturers dropped to minus 60 from the September survey’s minus 57, the worst figure since the BOJ began to compile statistics on this business category, the survey shows.

Small nonmanufacturers’ confidence improved by a single point from minus 44 in September to minus 43 in December, the tankan shows. Despite the slight improvement for small nonmanufacturers, business confidence in all four categories — rounded out by major nonmanufacturers, and small and major manufacturers — are still mired at low levels.

This is the fifth consecutive tankan in which indexes for all four categories registered minus figures.

As for the March tankan, indexes for major firms are projected to improve to minus 48 for manufacturers, up 8 points, and minus 34 for nonmanufacturers, up 7 points, according to the survey.

However, business sentiment at smaller companies was expected to stay flat or deteriorate further, with the manufacturers’ March diffusion index forecast to remain the same at minus 60 and that for nonmanufacturers dropping 2 points to minus 45, the tankan shows.

Meanwhile, the index of major firms’ business sentiment on bank lending fell to minus 36 from minus 33 in September, while that of smaller companies was also down 2 points to minus 22, the results show.

The lending index represents the percentage of companies saying they find it easy to borrow money from banks minus the percentage of those replying otherwise.

Monday’s tankan also indicates a majority of firms still feel they have a redundant workforce, making it possible that unemployment could rise further in the coming months.

On corporate investment in equipment, both large and small companies remain cautious, posting minus 2.6 percent and minus 15 percent, respectively, according to the survey.

In addition, profit projections by firms for all of fiscal 1998 are bleak — major manufacturers predict a 22.7 percent drop in pretax profits compared with fiscal 1997, while major nonmanufacturers foresee a 9.8 percent fall, the tankan shows.

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