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Business confidence deteriorated further in the April-June period from the previous quarter to its lowest level in 21/2 years, mainly on a continued decline in stock prices and exports, the government said Wednesday.

The Business Survey Index sank to minus 38 from the minus 31 recorded in the January-March quarter, down for the third straight month to its lowest point since the minus 41 recorded in the October-December period of 1998, the Cabinet Office said.

It was also the third consecutive negative quarter for the index, meaning the percentage of corporate managers believing the economy deteriorated from the previous quarter outpaced that of those with positive views.

Yoshihiko Senoo, a senior Cabinet Office economist, sounded more cautious than in the previous quarter in assessing the survey result, saying, “Sentiment among companies in Japan is likely to continue to deteriorate and moves ahead should be cautiously monitored.”

While there were expectations the index would begin improving in the reporting quarter three months ago, the prediction was postponed to the current quarter, Senoo said.

The BSI is projected to stand at minus 27 in the July-September period and minus 12 in the October-December quarter.

Senoo attributed the forecast to expectations among exporters of a recovery in the U.S. economy but acknowledged the situation has worsened since the survey was conducted June 25.

The quarterly survey was conducted on 4,501 companies capitalized at 100 million yen or more. The response rate was 90.9 percent.

The BSI remained in negative territory for all the 28 industries for the second straight term in the reporting quarter, with that of manufacturers falling to minus 39 from minus 32 and of nonmanufacturers to minus 36 from minus 30.

The index for individual firms’ pretax profit prospects fell to minus 21 from minus 13 and is estimated to be minus 12 in the current quarter and minus nine in the following quarter.

The office also said the BSI for inventories rose to 27 as of the end of June from 22 three months earlier, reflecting an increase in the number of firms believing they have excess finished product inventories. The index, however, is expected to fall to 17 for September and 12 for December.

The survey also found that capital investment is estimated to have decreased a seasonally adjusted 8.6 percent in the April-June period from a year earlier, following a 1.7 percent dip the preceding term. Manufacturers are expected to record a 9.6 percent decline from a 0.8 percent gain the previous quarter, and nonmanufacturers to mark a 10.4 percent tumble after remaining unchanged in the previous quarter.

Retailers and restaurants, real estate companies and electric machinery makers contributed most in dragging down the estimated investment in the reporting quarter, Senoo said.

By half-year, estimated capital spending grew 4.6 percent in the January-June period over the same term last year but is predicted to decrease 3 percent in the latter half of this year, the first downswing in a year.

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