TOKYO, Dec. 12 (UPI) -- The Bank of Japan reported early Wednesday Japan's corporate confidence plunged to it slowest level since March 1999, with the key business confidence index dropping to minus 38 from minus 33 in September.
It was the first quarterly "tankan" survey polled since the terrorist attacks on New York and Washington, and marked the fourth straight month of decline in sentiment.
While a further downturn was expected, the degree of decline was worse than anticipated. The latest survey underlines just how the events of Sept. 11 have affected the confidence of Japanese businesses. Earlier this month, the government revealed the third quarter's gross domestic product growth rate contracted by minus 0.5 percent from the previous quarter, and marked the onslaught of the fourth recession in a decade.
Moreover, it highlighted companies are being forced to slash capital expenditures by 6.5 percent on average until the end of the current fiscal year in March 2002, which is particularly worrisome for economic growth moving forward. Most Japanese companies already had been wary of increasing investments since earlier this year, and further cuts will only aggravate prospects still further.
But with the unemployment rate at its highest level since the end of World War II, and the number of corporate and individual bankruptcies reaching all-time highs, all 15 industrial sectors surveyed reported said they expect conditions to deteriorate still further before moving back up.
The tankan survey is closely watched by financial markets as a gauge of how the business community sees the current economic situation, as it shows the percentage of companies reporting conditions are good, compared to those stating the climate has deteriorated since the last poll.
Businesses surveyed on average expect pretax profit for the current fiscal year to fall 34.4 percent from the previous year, the first downward earnings projection in three years, with the high-tech, manufacturing and banking sectors particularly downbeat on earnings projections. Blue-chip companies expect the biggest downturn in earnings since 1975, which saw profits fall 49.8 percent from the previous year.
Meanwhile, the biggest decline in sentiment was seen among electronics manufacturers, which reported the index falling to minus 63. That is the worst industry sentiment report since February 1975.
Nevertheless, Tokyo share prices actually rose at the end of trading Tuesday, with the key Nikkei-225 average soaring 327.61, or 3.13 percent, to close at 1,801.52. Investors broadly agreed that the tankan results, though disheartening, could have been still worse. Moreover, some argued the report could actually encourage the government to pump more public funds into the sagging economy.
But some analysts fear the Nikkei's rise actually indicates just how poor a state the Japanese economy is in, if share prices can actually rise after such bad economic news and bleaker prospects.
