Japan's Business Confidence Plunges

Dec. 16, 2008 - PRLog -- Business confidence in Japan fell at the fastest pace in over three decades as the financial crisis that started with the US housing market spreads rapidly through Asia.  A widely watched Bank of Japan (BoJ) quarterly survey of 10,409 companies with a 99 percent response rate,  revealed that business sentiment had suffered the sharpest fall since the oil crisis in 1970s. The headline diffusion index, which measures business sentiment among the large manufacturers tumbled to minus 24 in December, down from minus 3 in September. The 21 percent drop is the second sharpest fall in the history of the survey.

The index for large non-manufactures fell to minus 9 from plus 1 in September, turning negative for the first time in five years.

As the global financial crisis deepens, the demand for Japan’s cars and electronics has dried up amongst its main trading partners- US and Europe. With exports falling, Japanese companies are forced to cut production, fire workers and slash their profit forecasts for the year. The electronics gaint Sony announced 8,000 job cuts last week at its ailing consumer electronics unit. Electronics maker Canon announced similar moves.

Business sentiment in Japanese automakers plunged to minus 41 from 5 in the last survey, as hard-hit carmakers grappled with various means to cut costs. Toyota announced plans to reduce its temporary work force by half and is considering cutting production in its units in India, China and Brazil.

As profits fall, companies also plan to reduce capital investments by 0.2 percent this fiscal year.

Companies expect the business environment to get worse in the coming months. Index measuring manufacturers’ outlook for three months ahead fell to minus 36, while index for service companies fell to minus 14, the survey revealed.

This sentiment was reiterated by BoJ Governor Masaaki Shirakawa who said in an interview that the Japanese economy may contract in the year to March 2010.  The BoJ had previously forecast a growth of 0.6 percent for the next fiscal year.

The BoJ indexes are derived by deducting the percentage of companies that are pessimistic about the economy from the percentage that are optimistic. A negative reading means pessimists outweigh optimists.

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