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Tuesday, Dec. 16, 2008
Corporate malaise worst in 34 years
Firms feel pinch as demand dives: 'Tankan'
Large manufacturers suffered their steepest fall in confidence in 34 years as the global financial crisis eroded profits, especially for carmakers, the Bank of Japan "tankan" survey showed Monday.
The index's fall matched the 21-point slide in February 1975 and was the second-sharpest decline since the 26-point drop in August 1974 during the oil crises of the 1970s.
Large manufacturers' business sentiment plunged to minus 24, down 21 points from the previous survey in September, marking the lowest level since March 2002, when it was minus 38, according to the BOJ.
The tankan showed that major manufacturers are even more pessimistic about the coming three months. Business sentiment among big manufacturers for the March forecast is minus 36.
Economists said sluggish foreign and domestic demand hurt businesses, and some even predicted the BOJ may cut its 0.3 percent interest rate later this week when the Policy Board meets.
Yasunari Ueno, chief market economist at Mizuho Securities, noted that both domestic and foreign demand are plunging.
The index was minus 34 for domestic demand, down from minus 18 in the previous survey, while demand in the foreign market was minus 28, down from minus 6.
"The index shows that the current economic deterioration has been progressing at a historic pace," said Takahide Kiuchi, chief economist at Nomura Securities Co. "Exporting manufacturers, such as automobile (makers), are damaged in particular, as the exporting environment worsens, triggered by the global financial crisis," he said.
Business sentiment in the automobile sector stood at minus 41, compared with 5 in the previous survey.
The index of the car industry's outlook for the three months ahead plunged to minus 68, while that of the nonferrous metal industry was minus 54.
Kiuchi said many companies feel overstaffed and have excess equipment investments.
The major manufacturers' employment index — the percentage of firms having excessive workforces minus those understaffed — stood at plus 8. This shows firms judged their workforces to be excessive.
"As the economic situation is unpredictably bad and financial situations are worsening . . . there is a high chance (the BOJ) will slash its interest rate" in December or January, Kiuchi said.