• Reuters

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Japanese big manufacturers’ business sentiment deteriorated to the lowest level in nearly three years and is expected to worsen in the coming quarter, a closely watched central bank survey showed, heightening pressure on both Prime Minister Shinzo Abe and the Bank of Japan to do more to shore up the ailing economy.

Big firms also cut their capital expenditure plans for the current fiscal year that began Friday, underscoring the challenges the BOJ faces in nudging risk-shy companies into boosting spending through aggressive money printing.

The weak reading may also persuade Abe to delay yet again a sales tax hike scheduled for next year to keep the economy afloat.

It will also keep the BOJ under pressure to loosen monetary policy further when it reviews its quarterly forecasts later this month, some analysts say.

“The slowdown in emerging economies, particularly that of China, has affected business sentiment. The impact was big for big manufacturers with direct exposure to global economic conditions,” a BOJ official told reporters in a briefing.

The headline index gauging big manufacturers’ sentiment stood at plus 6 in March, half the level seen three months ago and worse than a median market forecast of plus 8, the central bank’s tankan quarterly survey showed on Friday.

It was the lowest reading since June 2013, when big manufacturers’ mood stood at plus 4.

The sentiment index for big nonmanufacturers slid to plus 22 from plus 25 three months ago, deteriorating for the first time in six quarters, as a spending spree by overseas visitors moderated.

Both big manufacturers and nonmanufacturers expect sentiment to worsen in the coming three months, underscoring companies’ concern over the murky global economic outlook.

Big firms slashed their capital spending by 0.9 percent for the current fiscal year, compared with a median market forecast for a 0.7 percent decline, the survey showed.

Japan’s economy shrank in October-December due to weak exports and consumption. Many analysts now expect it to have contracted again in January-March, which would put the country back into recession, commonly defined as two straight quarters of negative growth.

The BOJ’s controversial decision in January to adopt negative interest rates has so far failed to boost stock prices or brighten corporate sentiment.

The government, for its part, is already considering compiling a fresh fiscal stimulus package and delaying next year’s sales tax hike to prevent external headwinds from derailing a fragile economic recovery.

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