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Saturday, Dec. 15, 2007

Subprime woes dog the 'tankan'

First fall in sentiment in three quarters


Staff writer

The business confidence of major manufacturers dropped for the first time in three quarters in the Bank of Japan's latest "tankan" survey released Friday, reflecting pessimism as U.S. subprime-mortgage woes continue to cast a dark cloud over the Japanese economy.

The BOJ's key quarterly survey showed that the business sentiment of big manufacturers dropped to 19 from 23 in the previous tankan, which was released in October. The average forecast of 24 private-sector economists surveyed by Kyodo News was 20.

"It was much worse than I thought," said Akihiro Morishige, an economist at Mitsubishi Research Institute.

Morishige said the worsening prospects of the U.S. economy have led to the deterioration in business sentiment of most major manufacturers and nonmanufacturers since the previous survey.

The business confidence of big nonmanufacturers plunged to 16, down 4 percentage points from the last survey, while the index that forecasts the three months ahead was 15.

The tankan index represents the difference of companies reporting favorable business conditions minus those reporting unfavorable ones. About 10,000 companies responded to the survey between Nov. 12 and Thursday.

The business confidence of some 1,200 big manufacturers for the three months ahead was 15, also showing that their business outlook for the near future is bleak. The three-month forecast index has continued to drop for six straight surveys.

Morishige particularly pointed out the business sentiment for construction-related companies plunged due to tougher building regulations that took effect in June.

Housing starts plunged 44 percent in September and 35 percent in October from the same periods last year.

"Business sentiment for those companies will not improve easily," Morishige said. "It will take six months or a year to recover."

The government tightened the law on building standards following a public outcry after a spate of scandals involving the fabrication of earthquake resistance data by architects.

The real estate sector's business confidence dropped to 37 from 50, and the ceramics, stone and clay sector fell to minus 2 from 16 in the previous survey. The index for the lumber and wood products sector, as well as that for the construction sector, also fell in the latest tankan.

Takuto Nagashima, an economist at Japan Research Institute, pointed out that companies, especially small enterprises, are suffering from rising oil prices and raw materials, which are eroding their profits.

An index of wholesale prices for small manufacturers rose to 57 from 52 in the last tankan, the highest level since May 1980. The index represents the difference of companies reporting a rise in wholesale prices minus those reporting a fall.



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