Business confidence at large companies plunged into negative territory in the quarter ending in December because of the rising yen, the floods in Thailand and a global economic outlook made gloomier by the sovereign debt crisis in Europe, the Finance Ministry said Friday.
For companies capitalized at ¥1 billion or more, the ministry's sentiment index slid to minus 2.5 from positive 6.6 in the previous quarter, entering negative territory for the first time since the April-June quarter, when the March earthquake and tsunami stomped it down to minus 22.
"Both manufacturing and nonmanufacturing sectors are seeing the economy as moderating the pace of recovery," the Finance Ministry said.
The index is expected to improve to 1.1 in the January-March quarter as Thailand recovers, helping Japanese manufacturers resume production, and as reconstruction work following the March 11 disasters kicks into gear.
By industry, confidence among automakers and parts suppliers fell sharply with the impact of the Thai floods.
The yen's sharp appreciation against the dollar and other major currencies meanwhile pummelled sentiment at major exporters, such as carmakers and high-tech manufacturers, as the stronger currency pared overseas profits upon repatriation.
The index was calculated by subtracting the percentage of companies reporting deteriorating business conditions from those observing improvements in a joint survey conducted Nov. 15 by the ministry and the Cabinet Office.
Confidence among small and midsize firms, capitalized at ¥10 million to ¥100 million, improved but remained in negative territory, rising to minus 16.1 from minus 22.2.
The 12,128 polled firms were of various sizes and from all industries. They forecasted that sales would increase by an average of 0.8 percent for the whole of fiscal 2011 ending in March. But pretax profit is projected to decline 2.0 percent, while capital spending is expected to grow 0.7 percent.