Business confidence among large manufacturers deteriorated in the October to December period, posting the second straight quarterly deterioration on a decline in exports amid strained ties with China over the Senkakus row, the Bank of Japan announced Friday in its latest “tankan” corporate sentiment survey.
The index, which measures the confidence of big producers such as carmakers and high-tech firms, plunged to minus 12 in December, its lowest level since it slumped to minus 14 in March 2010, the central bank reported.
The figure was lower than the average of minus 10 forecast by economists polled by Kyodo.
The sentiment index for major automakers nose-dived an alarming 28 points to minus 9, reflecting the boycott of Japanese products sparked in China by Japan’s effective nationalization of the Senkakus in mid-September, enraging Beijing, which also claims the islets, and sparking mass and often violent protests. The end of the subsidy program for purchases of fuel-efficient cars was another major negative factor.
Still, large manufacturers expect confidence to improve slightly in the next quarter and project the index will rise to minus 10, a sign that the economic deterioration seen earlier this year may be bottoming out.
“Though companies remain cautious, today’s tankan does not show the economy is continuing to regress,” said Kyohei Morita, chief economist at Barclays Capital Japan Ltd., adding that the real economy appears to have started solidifying gradually.
“But the real economy is still weaker than the scenario forecast by the BOJ,” Morita said.
The worsening corporate sentiment will likely prompt the central bank to downgrade its assessment of the economy, and possibly result in the introduction of additional monetary easing measures at its Policy Board meeting next week, Morita added.
Masaaki Kanno, chief economist at JPMorgan Securities Japan Co., agreed that the BOJ is probably going to further ease its monetary policy, citing the sharp deterioration in business sentiment in the reporting quarter, and a downward revision in pretax profit plans in the second half of the current fiscal year through March.
The tankan also showed that the confidence of nonmanufacturing companies, such as those in the construction and services sectors, declined to plus 4 from plus 8, logging its first fall in six quarters and lower than the average estimate of plus 6 predicted by the economists surveyed.
Among major nonmanufacturers, the construction sector index fell 1 point to zero, while communications companies’ sentiment dropped 8 points to plus 40, though analysts said these figures still illustrate their underlying strength.
The index reflects the percentage of companies declaring favorable business environments minus those reporting unfavorable conditions. The BOJ canvassed 10,654 companies between Nov. 13 and Dec. 13, of which 99.3 percent responded.
On capital spending, the BOJ said large firms across all industries plan to increase their expenditure by 6.8 percent in fiscal 2012 compared with the previous year. The figure was larger than the 6.4 rise seen in the September tankan, as investment growth in the nonmanufacturing sector more than offset a downward revision among major producers.
While big manufacturers expect sentiment to improve over the next three months, large nonmanufacturers predict confidence will deteriorate slightly and see the index declining by 1 point to plus 3.
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