Japan Biz Sentiment Worst in Nearly 7 Yrs: BOJ Tankan

Tokyo, Dec. 15 (Jiji Press)--Business sentiment among large
Japanese manufacturers in December deteriorated to the worst level in nearly
seven years, hurt by a slump in exports resulting from a global economic
slowdown and the stronger yen, a Bank of Japan survey showed Monday.
The Japanese central bank's "tankan" quarterly survey showed that
the diffusion index for large manufacturers' current business conditions
fell to minus 24 from minus 3 in the previous September survey, the lowest
since March 2002, when the index plunged to minus 38 in the aftermath of the
high-tech bubble burst.
The headline DI deteriorated by 21 points from the previous survey,
the second fastest fall on record after a 26-point drop marked in the August
1974 survey after the 1973 oil shock.
The DI is the percentage of companies seeing their business
conditions as favorable minus that of companies feeling the opposite.
Negative figures mean that there were more pessimists than optimists.
"Big exporters are especially hit hard and this damage will
definitely spread to nonmanufacturers and small companies," said Koji
Shimamoto, chief strategist at BNP Paribas Securities (Japan) Ltd.
As a sense of excessive employment and facilities is rapidly
growing, wages and capital spending are likely to become suppressed, he
said.
The tankan report also showed that Japanese companies forecast a
further economic downturn in the near future. Large manufacturers' business
condition outlook DI toward March stood at minus 36, much worse than the
current DI.
"Big companies seem to expect the world economy to get extremely
worse in the first half of next year" said Hideo Kumano, chief economist of
the Dai-ichi Life Research Institute.
Globally operating exporters such as automakers and precision
equipment makers are suffering more serious damage, Kumano said.
Among large manufacturers, the current business conditions DI for
automakers tumbled to minus 41 from plus 5, the steepest-ever drop, and that
for electric machinery makers plunged to minus 37 from minus 9.
The outlook DI stood at minus 68 for automakers and at minus 39 for
electric machinery makers.
Daiwa Institute of Research senior economist Yuji Kameoka said
manufacturers' sentiment is presumed to have deteriorated further as the yen
has strengthened further since the survey period of between Nov. 10 and
Friday.
Large manufacturers' assumed exchange rates for fiscal 2008 ending
in March averaged 103.32 yen to the dollar, much higher than the dollar's
recent low of below 89 yen hit last week.
The BOJ survey also showed large manufactures' recurring profit is
projected to fall 24.2 pct in fiscal 2008 from the previous year, the first
decline in seven years, although they expect sales to grow 0.9 pct.
The current business conditions DI for large nonmanufacturers also
worsened, falling to minus 9 from plus one, the first negative reading in
five years.
Among small firms, the DI for manufactures came to minus 29 against
minus 17 and the DI for nonmanufacturers was at minus 29 against minus 24.
Large manufacturers plan to increase capital spending by 2.4 pct,
but the plan was revised down from the previous survey.
The survey also showed that financial institutions turned less
accommodative in terms of lending to small businesses.
The DI for small firms' funding conditions worsened to minus 15,
the lowest level since March 2003, while that for financial institutions'
lending attitudes to those firms came to minus 9, also the worst since March
2003.
The employment DI for large manufacturers came to plus 8, posting a
positive figure, which means excess labor, for the first time in three
years. Both large and small companies plan to hire less new graduates in
fiscal 2009 than in the previous year, the tankan report showed.
The report covered 10,409 companies. Valid responses were received
from 99.0 pct of them.
Hirotaka Kusaba, senior economist at the Mizuho Research Institute,
said the dismal tankan reading, together with the Federal Reserve's
anticipated interest rate cut on Tuesday, is expected to prompt the BOJ to
move to ease credit.
"As a growing number of companies are now experiencing funding
difficulties, possible options may include purchases of commercial paper and
a cut in interest rates" Kusaba said.
The Japanese central bank, which cut its benchmark rate to 0.3 pct
in October, is set to hold a two-day policy meeting through Friday.