• Kyodo

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Business sentiment among large Japanese companies fell to its lowest level in three years in the October-December quarter, hit by a slowdown in the Chinese economy and the consumption tax hike at home, a government survey showed Wednesday.

The confidence index covering firms capitalized at ¥1 billion ($9 million) or more stood at minus 6.2 in the fourth quarter of 2019, sharply down from 1.1 in the previous quarter, according to the joint survey by the Finance Ministry and Cabinet Office.

The index is calculated by subtracting the percentage of firms reporting worsening conditions from those observing improvements.

The figure was the lowest since the index hit minus 7.9 in the April-June quarter in 2016 following major earthquakes in Kumamoto Prefecture and when the yen was in a period of appreciation.

Looking forward, the index forecasting business conditions in the three months through March stood at 2.0, while that for the following quarter came to 1.1.

At the beginning of the reporting period, the consumption tax was raised from 8 percent to 10 percent.

But the figure was better than the minus 14.6 seen in the April-June quarter in 2014, when the tax rate was increased to 8 percent from 5 percent. A government official told reporters the negative impact on the index was bigger from the previous tax hike.

By sector, the large manufacturers index for the reporting quarter was minus 7.8, with notable declines seen in auto-related firms and equipment manufacturing-makers amid a slump in demand from overseas markets, including China.

The index for large nonmanufacturers stood at minus 5.3, due partly to sluggish sales at home appliance shops and department stores following the tax hike and a powerful typhoon.

For midsize companies capitalized at ¥100 million or more but less than ¥1 billion, the index stood at minus 10.7 for October to December on an all-industry basis, while that of small firms capitalized at above ¥10 million but below ¥100 million came to minus 16.3.

The survey covered 14,097 companies, of which 11,490, or 81.5 percent, had responded as of Nov. 15.

A separate report released Wednesday by the Bank of Japan said wholesale prices rose 0.1 percent in November from a year earlier, as crude oil prices halted their decline and the consumption tax increase continued to have an impact.

The price of goods traded between companies picked up for the first time in six months, as prices for crude oil and liquefied natural gas rose slightly in the reporting month and trade tensions eased between the U.S. and China, a BOJ official said.

The consumption tax hike also supported a wide range of prices, the official said.

“Downward pressure on prices receded as oil prices stopped dropping amid growing expectations of a U.S.-China trade deal” in the reporting month, said the official.

He added that the central bank will continue to closely monitor developments in trade negotiations between the two countries.

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