Corporate sentiment plunged through all sectors in the March “tankan” survey for the first time in 10 quarters, the Bank of Japan reported Monday.
According to the BOJ’s quarterly survey gauging business sentiment, the diffusion index — the percentage of firms that believe business is favorable minus those that feel the opposite — fell 15 percentage points for large manufacturers to minus 5. The index worsened for the first time since December 1998.
It is the first time in nine quarters that the index for large manufacturers — whose capital expenditures had been one of the few engines pulling the economy — worsened from the previous quarter.
Business outlook did little better, with more large manufacturers forecasting business conditions would deteriorate still further for the next quarter, to a projected June DI of minus 8.
The worse-than-expected tankan, bearing the full brunt of March’s share price falls, confirmed apprehension toward a U.S. slowdown and expected export declines.
Business sentiment among large manufacturers of electrical machinery fell for the second consecutive quarter, with the DI dropping 39 points to minus 9, on the heels of an 11-point drop the previous quarter. This is the first time for the industry’s sentiment to decline into minus territory since December 1999.
For large nonmanufacturers, the index fell to minus 13 from minus 10 in December, the second straight quarterly setback.
The index for small and medium-size manufacturers deteriorated to minus 27 from minus 16, while that for small and medium-size nonmanufacturers fell to minus 28 from minus 23.
“Of course, this means that the domestic economy is falling into a recession,” said Jesper Koll, chief economist at Merrill Lynch. “But it is also important to note that the decline in business confidence is matched by a very sharp decline in projected capital expenditures.
“We are looking at another round of forward-looking restructuring in Japan.”
In fiscal 2000, large firms boosted spending on plant and equipment by 4.5 percent, but said they meant to reduce spending by 4.7 percent for the current fiscal year.
Large manufacturers said they spent 14.6 percent more in fiscal 2000 than in fiscal 1999 but plan only a 2.3 increase for fiscal 2001, while large nonmanufacturers spent 1.4 percent less in fiscal 2000 and plan to cut spending by 9.5 percent in the current fiscal year.
Small and medium-size corporations said they meant to cut back spending 21.3 percent for the current fiscal year, following cuts of 2.5 percent in fiscal 2000.
Meanwhile, large nonmanufacturers reported a shortage in employees for the first time in five quarters, while small and medium-size nonmanufacturers also reported a shortage for the first time in three quarters.
And while the DI for large nonmanufacturers fell 3 points to minus 13, the companies’ outlook improved two points to minus 11, reflecting improved outlook among wholesale and retail companies for the next quarter.
All companies reported a rise in projected pretax profits for the current fiscal year, with large manufacturers forecasting a 25.3 percent rise for fiscal 2000, even after a downward revision of 3.2 percentage points, and a 3.6 percent rise for fiscal 2001.
Large nonmanufacturers forecast a 3.3 percent increase after revising their projected profits 1.8 points for fiscal 2000 and a 5.2 percent rise for fiscal 2001.
In all categories, companies forecast increased sales for fiscal 2000, with all firms together projecting sales to rise 2.5 percent for fiscal 2000 and another 1.6 percent for fiscal 2001.
As with previous surveys, BOJ officials refused to comment on whether the latest tankan has changed the central bank’s assessment of the economic situation.
After the report was released, the main gauge on the Tokyo Stock Exchange swooned, falling 61.84 points to 12,937.86. In addition, the dollar gained on the yen. At 5 p.m., it traded at 126.39-42 yen, up from 125.25-28 yen late Friday. Bond prices also fell.
The BOJ will give its judgment on the economy, incorporating the tankan results, in its next monthly report.
The survey was conducted between Feb. 23 and March 30 on 8,992 companies, of which 95.3 percent responded.
No big surprise: Muto
A business confidence survey released Monday by the Bank of Japan showed sentiment is worsening among manufacturers, but Vice Finance Minister Toshiro Muto said the results were within expectations.
The “tankan” quarterly business survey “showed the economic recovery is stalling,” Muto told a regular press conference.
The survey showed the diffusion index of business sentiment among large manufacturers stood at minus 5 in March, down from 10 in the December survey.
It is the first time in nine quarters that the index has worsened from the previous quarter and the first time in four quarters it has fallen into negative territory.
The government downgraded its economic assessment in March and said, “The economic recovery appears to be pausing.”
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