Confidence at major Japanese manufacturers worsened to its lowest in more than four years as the plunging dollar, soaring fuel prices and fears of a US slowdown weighed on the economy.
The closely watched quarterly central bank "Tankan" survey, released yesterday, showed the index for large manufacturers' business sentiment fell to 11, down from 19 in the survey released in December.
The latest reading was the lowest since December 2003, and also lower than the reading of 12 expected by analysts polled by Dow Jones newswires.
The Tankan sentiment index is the percentage of companies saying business conditions are good minus those saying conditions are unfavorable.
"The Tankan is showing that conditions are extremely bad for Japanese companies," said Yuji Shimanaka, chief economist Mitsubishi UFJ Securities in Tokyo.
Fears have been looming about the health of the world's second-largest economy as Japan remains so dependent on exports for growth that a weak dollar is likely to further dent already poor profits at some companies.
The US dollar fell below ¥96 last month for the first time in more than a dozen years, and large manufacturers expect the dollar to be weaker in the year ahead than in the just past fiscal year.
They said they expect an average dollar value of ¥109.21 during the fiscal year ending March 31, 2009, lower than their estimate for an average value of ¥115.17 for the fiscal year ended on Monday.
Share prices have also been battered, with the major index on the Tokyo Stock Exchange, Asia's biggest bourse, losing nearly a third of its value over the last fiscal year.
Shimanaka urged the Bank of Japan to immediately start lowering interest rates to salvage the economy. The central bank has kept its benchmark interest rate at a low 0.5 percent since February last year.
"A series of shocks has hurt the economy," Shimanaka said, listing the global slowdown, a weak dollar and soaring oil prices.
Rising fuel prices have been especially hard on smaller companies, he said.
The index for small manufacturers stood at minus 6 last month, while the small non-manufacturers' index hit minus 15.
Sentiment among large non-manufacturers deteriorated to 12 from 16 three months ago.
The Bank of Japan surveyed 10,705 companies between Feb. 26 and March 31, of which 98.6 percent responded.
Adding to the gloom was the showing on prospects for the future from the Tankan, which found Japanese companies plan to slash capital expenditures this fiscal year.
The Tankan survey showed large Japanese companies plan to decrease business investment by 1.6 percent in this fiscal year, which began yesterday.
"The Tankan confirms that corporate sentiments have grown seriously tough, reflecting the rapid rise of the yen and worries about the global economy," said Shinichi Ichikawa, an analyst at Credit Suisse in Tokyo.
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