Business confidence in Japan deteriorated sharply in the January-March quarter amid declines in share prices and the deceleration in the U.S. economy, according to a government survey released Tuesday.

The Cabinet Office said its quarterly survey found that its business sentiment index dropped to minus 31 in the reporting period from minus 1 in the October-December period.

The BSI is designed to measure corporate managers’ confidence in the economy and is calculated by subtracting the percentage of managers saying the economy will worsen from the percentage of those saying otherwise.

“Share prices in Tokyo remained weak during the first quarter of this year, while Japanese exporters were hit by a deceleration in the U.S. economy,” said a Cabinet Office official.

The manufacturers’ BSI dropped to minus 33 in the January-March quarter from plus 3 in the previous quarter, with that of the steel industry falling to minus 40 from plus 5, the electric machinery sector to minus 35 from plus 7 and the precision instruments sector to minus 41 from zero.

“Those three sectors were severely damaged by deteriorating export environments, and it is necessary to keep a close watch on the course of the U.S. economy,” the official added.

The BSI of nonmanufacturers also worsened, to minus 29 from minus 3.

The business confidence gauge, meanwhile, is expected to improve gradually and come in at minus 19 for all industries in the April-June quarter and minus 6 in July-September, the office said. Despite the upward forecast, the official predicted the BSI will stay in minus territory for a while.

The BSI for individual firms’ pretax profit prospects fell to minus 13 in January-March from minus 1 in the previous quarter and is estimated to be minus 9 in April-June and minus 4 in July-September.

The office also said the BSI for manufacturing capacity came to 21 against 17 in the previous quarter, showing the number of firms believing they have excess capacity increased. That BSI is expected to rise to 22 in April-June and then turn downward in July-September, falling to 20.

The survey also found that capital spending is forecast to fall 5.5 percent for fiscal 2001, which started April 1, compared with the estimated 3.5 percent rise in the previous year.

The survey was conducted on March 10 on 4,540 companies capitalized at 100 million yen or more, of which 4,178 companies, or 92 percent, responded.

Regions rated lower

The Finance Ministry downgraded its assessment of regional economies Tuesday due to ongoing sluggishness in business investment and personal consumption.

“The economy continues to move toward a self-sustaining recovery, led by the corporate sector, but remains weak as a whole,” the ministry said, summarizing the reports of its 11 regional finance bureaus.

At their latest quarterly meeting, the bureau chiefs said business investment for fiscal 2001, the main engine behind a recent surge in economic activity, will likely fall below the level of the previous fiscal year. They also said personal consumption was leveling off.

In its January report, the ministry said regional economies were gradually improving.

The regional chiefs left unchanged their assessments of the corporate sector, as corporate earnings for the first half of fiscal 2001 are expected to grow. However, a recent deceleration in the U.S. economy has hit Japanese exporters and deteriorated the business climate, they said.

On personal consumption, the summary notes some bright signs, citing reports from several bureaus that vehicle sales in the Kinki region exceeded those of the previous fiscal year, and that appliance sales remain favorable in Tohoku.

But it concludes that overall consumer prices remain weak in many areas, suggesting a deflationary tendency has spread across the nation.

The summary also says public works spending has been below the previous year’s level and that housing starts, which had shown an upward tendency led by low interest rates and tax breaks for housing loans, are still leveling off from the previous year’s level.

Tertiary index up

The tertiary industry improved in February as favorable weather boosted attendance at leisure facilities, the government said Tuesday.

The February index for tertiary industry activity rose 2.0 percent from the previous month to 109.0 against the 1995 base of 100, the Ministry of Economy, Trade and Industry said in a preliminary report. In January, the index fell 1.1 percent.

A breakdown shows the index for the services industry advanced 5.0 percent because many people visited sports facilities and theme parks. The index for wholesalers, retailers and restaurants rose 1.2 percent and that for real estate firms rose 2.1 percent.

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