Business sentiment is continuing to fall at Japanese companies as they struggle against declining exports and prices amid the global economic slump, according to the Bank of Japan's latest "tankan" quarterly survey.

The survey, released Wednesday, showed that the diffusion index measuring corporate sentiment at large manufacturers dropped 5 points to minus 38, falling for the fourth consecutive quarter. The index measures the percentage of companies that believe business conditions are good minus those that believe the opposite.

Large nonmanufacturers saw a 5-point drop to minus 22, while small and midsize firms together saw a 2-point drop to minus 44.

But the results, which were in line with market expectations, are unlikely to prompt the central bank to take immediate and unconventional action, economists said.

Compared with the plunges in business sentiment recorded in the previous tankan, Wednesday's results came as good news to market players.

The DI for large manufacturers of electrical machinery -- the industry hit hardest by the abrupt slowdown in the information technology market -- fell for the fifth consecutive quarter to minus 63. But the 3-point drop was much less than the 25-point drop in the previous survey.

The survey was conducted between Nov. 8 and Tuesday on 8,647 companies nationwide and 96.8 percent responded.

The results reflect the ongoing economic gloom as companies try to shed excessive inventory, machinery and employees to cope with falling demand overseas and at home. The results come just as banks are attempting to speed up bad-loan disposals and growing increasingly unwilling to prop up loss-churning companies.

"We are looking at another round of job cuts," said Peter Morgan, chief economist at HSBC Securities Japan. "The inventory index suggests that things could hit bottom, but the economy is still weakening overall."

Companies have adjusted production to meet slowing demand, but employers have been reluctant to reduce their workforces accordingly, Morgan said.

Firms are reining in surplus inventory, according to the tankan. Capital expenditures for the full fiscal year were slated to fall 7.8 percent from the previous year.

More companies meanwhile said they have excess workers, with the survey showing that the sense of redundancy grew 6 points to a DI of 38 for large manufacturers.

"Measures are going to be necessary in the January-March quarter to help out small and midsize companies," said Akimasa Okada, economist at NLI Research Institute.

Manufacturers and nonmanufacturers alike revised their sales forecasts downward for the fiscal year ending March 31. For the first time in three years, the companies surveyed said they expected sales to fall 3 percent compared with the previous year, and ordinary profits to fall 18.7 percent.

But while the index showing large manufacturers' outlook for the next quarter showed a 2-point improvement, small and midsize firms said conditions will deteriorate further.

"Larger companies have the stamina to weather the prolonged economic slump," Okada said. "Smaller companies are being nudged toward the brink."

Lending conditions deteriorated for the second consecutive quarter for large and small companies alike.

The DI measuring banks' lending attitudes toward small and midsize firms fell 2 points to minus 6, indicating more companies said lending attitudes were "harsh" rather than "lenient."

For midtier companies, the DI dropped 3 points to 0, while the index fell 3 points to 14 for large companies.

"It's not just small and medium-size companies. As the market becomes more sensitive about credit risks, larger companies are becoming more cautious about counting on bank loans," said Yasunari Ueno, chief market economist at Mizuho Securities Co. "But it's not what you would call a credit crunch yet."