Japanese business confidence crumpled to a new low in a March survey that showed collapsing foreign and domestic demand and the tightest funding crunch on record, putting pressure on the Bank of Japan to respond.
The central bank’s tankan sentiment survey produced a reading of minus 58 for big manufacturers, the weakest ever, compared with minus 24 in the previous quarter.
Companies surveyed said the outlook for the domestic market, in its worst recession since World War Two, looked grimmer than the picture for foreign demand. In another sign that the slump in exports caused by the global financial crisis was seeping through the Japanese economy, the index for large service sector firms was minus 31, the lowest since 1999. The mood was darkening at a record pace.
The central bank will probably discuss the tankan at a policy review next week but will still likely keep interest rates on hold at 0.1 per cent, analysts said. “The BOJ may buy more government bonds, commercial paper and corporate bonds to help company financing. It wouldn’t do much good to lower benchmark rates,” Norio Miyagawa, a senior economist at Shinko Research Institute, said.
The BOJ has been buying commercial paper and corporate bonds to make it easier for companies, faced with collapsing sales and profits, to raise cash. It has also expanded purchases of government bonds, effectively capping long-term interest rates.
The tankan showed companies still struggling to raise funds.
The index of big companies’ assessment of the commercial paper market fell four points to minus 24, the worst since the BOJ began surveying this aspect of funding in December 2003.
The index of financial conditions facing larger companies fell 11 points to minus four, the weakest reading since 1998. Both large and small companies reported a deterioration in the attitude to lending among financial institutions.
“This will pressure the BOJ to take additional steps such as easing requirements for outright corporate bond buying,’’ said Takahide Kiuchi, chief economist at Nomura Securities.
But the central bank would probably wait until May or June before considering a more drastic shift such as zero interest rates and a return to quantitative easing, he said.
Quantitative easing, an experimental policy the BOJ employed during a decade of deflation triggered by a property market crash in the 1990s, involves flooding the banking system with cash. Ominously, the index measuring the gap between supply and demand at home was minus 59.
The big manufacturers’ headline sentiment index was below the median market forecast of minus 55. When the figures were announced the yen dipped briefly 99.35 yen to the dollar from 99.00.
Large firms plan to cut capital spending by 6.6 per cent in the financial year that began yesterday. But big manufacturers expect to slash such spending by 13.2 per cent, much more than the previous year’s 2.4 per cent.
Big manufacturers expect sales to fall 6.5 per cent this financial year while last business year’s recurring profits at big firms, manufacturers and non-manufacturers, are expected to have fallen 43.7 per cent, the first decline in seven years. Companies were slightly less pessimistic looking ahead. The three-month outlook index for big manufacturers was a slightly improved minus 51 while that of non-manufacturers was minus 30. “The economy may reach a bottom in the summer but is not likely to return to previous levels of growth anytime soon,’’ Miyagawa said.
