• Kyodo, Reuters

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Business sentiment among large Japanese companies in the January-March period fell to the lowest level in five years and nine months, affected by the new coronavirus outbreak and slowing exports to China, a government survey showed Thursday.

Japanese shares tumbled the same day, with major indexes at three-year lows after the United States rattled markets by imposing sweeping restrictions on travel from Europe and world health officials declared the coronavirus a pandemic.

The confidence index covering firms capitalized at ¥1 billion ($9.6 million) or more stood at minus 10.1 in the first three months of 2020, down from minus 6.2 in the previous quarter for the second consecutive quarterly decline, according to the joint survey by the Finance Ministry and Cabinet Office.

The index hit its lowest point since it logged minus 14.6 in the April-June quarter of 2014, following the consumption tax hike from 5 percent to 8 percent on April 1 that year.

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

The survey covered 14,057 companies capitalized at ¥10 million or more, of which 11,413, or 81.2 percent, responded as of Feb. 15.

A government official told reporters the impacts of the coronavirus outbreak “had already begun appearing” when the survey was conducted, referring to disrupted supply chains and a series of cancellations at hotels and restaurants as factors in worsening business sentiment.

By sector, the large manufacturers’ index was minus 17.2, the lowest since minus 23.3 in the April to June period in 2011, following the massive earthquake and tsunami that hit northeastern Japan in March that year.

Notable declines were seen in sentiment of sectors including fabricated metal and chemicals due to sluggish exports of petrochemical products and auto parts to China, according to the official.

As for the export slump, the official cited the influence of the virus spread, which has been “disrupting supply chains,” along with the remaining negative effects from a tit-for-tat tariff war between China and the United States, which announced a travel ban from Europe to contain the spread of the virus.

Japanese stocks, however, dove after Trump’s address, with the benchmark Nikkei average slumping 4.4 percent to 18,559.63, its lowest closing level since April 2017. The fall was the second-biggest one-day decline in 15 months and dragged the index into bear market territory minus 23 percent off its Jan. 17 peak.

The business sentiment index for large nonmanufacturers stood at minus 6.6, due to lackluster sales at wholesalers, hotels and restaurants hit hard by the virus outbreak.

The index for small firms capitalized at ¥10 million or more but less than ¥100 million nose-dived to minus 25.3 for the reporting quarter on an all-industry basis, the worst since minus 41.1 in the April-June period of 2011.

For midsize companies capitalized at ¥100 million or more but less than ¥1 billion, the index stood at minus 13.1.

Looking forward, the index forecasting business conditions for large companies in the three months through June stood at minus 4.4, while that for the following quarter came to plus 4.2. to

Policymakers remain under pressure to support growth as a surge in the yen and fears of the impact from the coronavirus cast darkening clouds over the economic outlook.

Bank of Japan Gov. Haruhiko Kuroda said the central bank was ready to respond with further steps to support the economy, after a meeting with Prime Minister Shinzo Abe on Thursday.

The BOJ is expected to ease its monetary policy next week in an attempt to reduce the impact of the coronavirus and recent market volatility on business sentiment, sources familiar with the central bank’s thinking said Wednesday.

Kuroda said the BOJ has been providing ample liquidity and stepping up asset purchases in response to recent market moves, which he described as “fluctuating wildly.”

“We’ll take appropriate steps as necessary in a timely manner, while closely monitoring developments,” Kuroda told reporters.

The government announced this week a second package of measures worth about $4 billion in spending to tide over the impact of the virus, focusing on support for small and midsized firms.

The world’s third-largest economy shrank at the fastest pace in almost six years in the December quarter as a sales tax hike hit consumer and business spending, raising the risk of a recession.

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