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The confidence index for large manufacturers logged its biggest drop on record in March as the global financial crisis body-slammed exporters, the Bank of Japan’s quarterly “tankan” survey showed Wednesday.

Compared with the previous survey in December, business sentiment at large manufacturers plunged 34 points to minus 58 — the lowest since the BOJ began compiling the data in May 1974.

That exceeds the tankan’s 26-point slide during the oil crisis that hit in August 1974.

The tankan index represents the percentage of companies reporting good business conditions minus those reporting adverse conditions. It is a closely watched gauge of the economy.

The quarterly survey covered more than 10,441 firms between Feb. 23 and March 31, with responses received from 98.5 percent of them.

Economists said the collapse in exports has pushed sentiment among the largest manufacturers to its lowest level ever, suggesting more domestic industries are likely to feel the repercussions.

Takahide Kiuchi, chief economist at Nomura Securities Co., said large exporters, including carmakers and steelmakers, are in a particularly bad state.

The index was minus 92 for large carmakers, down from minus 41 in the previous survey, while the reading for large iron and steel manufacturers was at minus 65, down from 12.

Kiuchi said it is difficult to expect export-dependent Japan to make a full recovery when prospects for overseas economies are so poor.

Hiromichi Shirakawa, chief economist at Credit Suisse, noted that financing conditions are continuing to deteriorate for large firms.

The index of corporate finance for large enterprises fell to minus 4 from 7, while that for small firms fell to minus 23, down from minus 15.

“Since banks will be more reluctant to lend, I am worried about bankruptcies due to financing difficulties,” Shirakawa said, suggesting that preventive steps, including public bailouts, might be necessary to prevent more failures.

Shirakawa said plans to invest in plants and equipment are slowing significantly and an increasing number of companies feel overstaffed, which may lead to further job cuts.

The tankan showed that although major manufacturers remain largely pessimistic about the coming three months, there is nevertheless a slight sense of optimism. Business sentiment among such firms in June is forecast to rise slightly to minus 51, it said.

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