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Wednesday, April 2, 2008

Outlook bleak, businesses say

'Tankan' lower than expected


Staff writer

Business sentiment among major manufacturers dropped by 8 points to 11, marking the biggest drop in three years, according to the latest Bank of Japan "tankan" survey released Tuesday.

The BOJ's key quarterly survey said business confidence for big manufacturers fell to 11 from 19 in the December tankan, marking a second straight quarterly decline for an economy hit by the U.S. subprime loan crisis and rising oil prices. The index was lower than the average projection of 13 by 23 think tanks surveyed.

Although a figure above zero is generally positive for the economy, it is the overall trend that is most important.

Economists are mixed over Japan's outlook, with some saying the nation is facing a recession, while others believe the economy will remain flat for the time being and gradually pick up later this year.

Many also warn that the weakening dollar against the yen could dent profits of many of Japan's export-oriented companies.

"Japan is definitely at a standstill," said Rei Tsuruta, an economist at Mitsubishi UFJ Research & Consulting Co. "But it has not entered a recession yet."

The survey showed that the recent price hikes in oil and raw materials are starting to erode profits of processing firms in addition to basic materials companies, Tsuruta said. But he added that the economy is likely to pick up later this year as the U.S. economy begins to show signs of recovery.

Takuto Nagashima, an economist at Japan Research Institute, agreed, saying businesses will probably show negative figures in the three months to come but then enjoy better results in the latter half of business 2008.

It is for this reason, Nagashima said, that he thinks the BOJ will not change its benchmark interest rate in the near future.

"The BOJ will not be able to raise the rate this fiscal year and the possibility for a rate cut is also low because economic indexes are showing mixed results," Nagashima said.

Among the business sectors that saw a large drop from the last survey were petroleum and coal products, which plunged to minus 5 from 19, and precision machinery, dropping to 8 from 30 in the previous survey.

As for nonmanufacturers, business sentiment dropped to 12 from 16 in the previous survey. The real estate sector plummeted 16 points from the last survey to 21, and the restaurants and accommodations industry was minus 3, down 15 points.

But the biggest drop of business confidence was seen in brokerages, plunging 29 points to minus 55 in the latest survey — the worst since the BOJ started to compile data on financial institutions under the tankan in December 2003.

The confidence of some 1,237 big manufacturers for the three months ahead was 7, meaning most had a bleak outlook for the near future.

The index represents the percentage of companies reporting favorable business conditions minus the percentage of those reporting unfavorable conditions.

Business confidence for smaller manufacturers is also becoming increasingly shaky. The index for small and medium-size manufacturers fell to minus 6, down from 2 in the previous tankan.

Finance Minister Fukushiro Nukaga tried to play down the tankan's negative indexes.

"The increase of sales, pretax profit and investment figures are slowing down, but it is still on the positive side," Nukaga told reporters.



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