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Business confidence among large companies dipped in the April-June period, sending the business survey index for big firms into negative territory for the first time since the government started the quarterly poll in April-June 2004, the Finance Ministry said Wednesday.

The index of business conditions at companies capitalized at 1 billion yen or more came to minus 0.9 on an all-industry basis, down from 6.2 for January-March, according to the survey jointly conducted by the Cabinet Office and Finance Ministry.

It was the third straight quarter the index has fallen.

It is compiled by subtracting the percentage of companies reporting deteriorating business conditions from that of firms reporting improvement.

The index for manufacturers slipped to minus 2.2 from 0.1, while the index for nonmanufacturers plunged to minus 0.2 from 9.8.

The auto, information technology and construction industries are among the sectors that contributed to dragging down the index, a ministry official said.

He said the weak reading is partly attributable to rising prices of raw materials.

But he also downplayed the deterioration, saying the index tends to produce bearish readings in the April-June period and is expected to rebound in July-September.

Many private-sector economists also do not see the deterioration in the latest showing as a sign of change in the outlook for the economy.

“In line with recent weak movements in core machinery orders and industrial production, the drop in the business survey index for the April-June period had been widely expected,” said Seiji Adachi, senior economist at Deutsche Securities Ltd.

He said there is a market consensus that the economy will pick up in the July-September quarter and the result of the index alone won’t prompt analysts to revise their projection.

Adachi also said the result will have little impact on when the Bank of Japan will raise the key short-term interest rate.

“The central bank is expected to focus more on the bank’s ‘tankan’ business survey, due out July 2, and preliminary gross domestic product data for the April-June period to be released in August,” he said.

For midsize companies capitalized at 100 million yen to 1 billion yen, the all-industry business confidence index dropped to minus 5.1 from minus 3.1.

The index for small companies — capitalized at 10 million yen to 100 million yen — fell to minus 25.1 from minus 16.7.

Looking ahead, the business confidence index for large companies is projected at 12.0 for the July-September quarter and 11.5 for October-December.

The survey also showed companies of all sizes project a 3.3 percent rise in capital spending in fiscal 2007, a turnaround from a 5.3 percent decrease forecast in the previous survey.

Manufacturers plan to spend 6.2 percent more in capital investment than fiscal 2006, while nonmanufacturers forecast increasing spending by 1.5 percent.

The quarterly poll also showed companies of all sizes project 2.2 percent growth in sales in fiscal 2007 and a 4.5 percent rise in pretax profits.

“The data suggest that companies remain upbeat on capital spending in fiscal 2007, with a projection of an increase in sales and profits,” the ministry official said.

The index for employment conditions at large companies in all industries stood at 15.3 as of the end of June, down from 18.6.

The index is computed from the percentage of companies reporting a labor shortage minus the percentage of those reporting a surplus of labor. Readings in the plus column mean companies face a labor shortage.

The survey indicates the labor-shortage trend will continue toward yearend as the employment index is projected to remain positive.

The survey, conducted May 25, drew responses from 11,794 companies.

Muto cites risk factors

MATSUE, Shimane Pref. (Kyodo) Bank of Japan Deputy Gov. Toshiro Muto said Wednesday he sees ongoing and future developments in the U.S. and Chinese economies as well as inventory adjustment in the information technology sector as risk factors for the Japanese economy.

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