Japan’s business confidence hits new low

Agence France-Presse

Exports are about half what they were a year ago, unemployment is at a three-year high and consumers are spending less - all of which has shaken Japanese manufacturers who normally drive the world's second-largest economy.

The Bank of Japan said its quarterly Tankan survey of large makers of electronics, cars and other products found confidence even lower than in 1975, when the country was still in the wake of the oil shock.

"This Tankan clearly showed that the Japanese economy is literally faced with the worst recession in the nation's post-war history," said Hideki Matsumura, a senior analyst at the Japan Research Institute. "The Japanese economy first suffered a slump in exports in the wake of the global financial crisis, and the negative impact has now spread to domestic demand."

Confidence tumbled to minus 58 in March from minus 24 the previous quarter, a record decline in the Tankan index, which measures the percentage of firms that think business conditions are good minus those that think they are bad.

The previous record low was minus 57 in 1975.

The worst-hit major economy

As companies hit by collapsing demand idle more plants and lay off workers, the economy is set to shrink 6.6 percent this year, far worse than Europe and the U.S., says the Organization for Economic Cooperation and Development. "No end to the recession is in sight yet because more and more bad news is expected to come at home and overseas," Matsumura said.

The Tankan found that manufacturers believed sentiment would stay gloomy, forecasting a confidence rating of minus 51 for June.

Major manufacturers said they expect a 62.7 percent drop in pre-tax profits in the 2008 financial year to March 31. They also forecast a 19.7 percent slump for the new fiscal year that began yesterday, the survey showed.

Large firms across all sectors plan to trim their plant and equipment investment by 6.6 percent on average for the current fiscal year, in contrast to sharp gains in corporate capital spending in recent years. Meanwhile, domestic new auto sales dropped to a 38-year low in just-ended fiscal year 2008, an industry body said yesterday, piling more pressure onto the ailing sector.

The Japan Automobile Dealers Association said 2,891,901 new cars, buses and trucks were sold in Japan in the year to March 31 - down 15.6 percent from a year ago, and the sixth annual fall in a row. It was the lowest level since fiscal 1970, when Japanese motorists bought 2,859,847 vehicles, the association said. The high cost of owning and maintaining a vehicle has discouraged the Japanese public, particularly in cities, from buying cars in recent years.

The trend has pushed Japanese automakers to rely on overseas markets for growth, but the global economic downturn has forced them to slash jobs and production as they brace for drastic earnings falls or losses.