Huge decline in business sentiment in Japan

PHOTO: Huge decline in business sentiment in Japan

TOKYO - Business sentiment among large manufacturers deteriorated alarmingly this quarter as the diffusion index plunged 9 points to minus 12 in December, according to the Bank of Japan's latest Tankan survey released Friday.

The closely watched indexes in the central bank's quarterly survey represent the percentage of companies seeing good business conditions minus those feeling the opposite. The results marked a sharp drop from minus 3 in the previous survey in September.

In addition to registering a second consecutive quarter of decline, it also marked the first double-digit minus figure since March 2010, the lowest in two years and nine months.

The DI for business sentiment among large manufacturers is used as a benchmark for national business trends as a whole.

The decline has mainly been attributed to the global economic slowdown, a recent flare-up in tensions between Japan and China, and the end of government subsidies in September for purchases of fuel-efficient vehicles, which has led to a slump in domestic auto sales.

The latest DI clearly indicates that domestic business conditions have entered a recessionary phase.

Automakers saw business conditions plunge sharply by as many as 28 points to minus 9, compared to 19 in the previous survey. Manufacturers of industrial and general purpose machinery saw their DIs fall by 17 points and 13 points, respectively, from September's figures of minus 11 and minus 4, respectively.

The reading for nonferrous metal manufacturers also dropped 13 points from minus 13 in September.

Among large nonmanufacturers, the DI dipped to 4, down from 8 in September, logging the first decline in a year and six months. Hotel and restaurant services showed a shrinkage of 16 points at minus 10, reflecting a sharp decrease in the number of Chinese tourists.

The latest DI for small and medium-sized manufacturers fell 4 points to minus 18, the lowest in one and a half years, while nonmanufacturers logged minus 11, down 2 points, according to the survey.

Meanwhile, the DI for forecasted business conditions among large manufacturers approximately three months ahead has improved 2 points to minus 10.

The improvement is generally attributed to expectations that the world economy will slowly pick up from early next year, leading to an increase in exports and recovery of production, as well as indications that the worst period in the Japan-China rift may be nearing an end in terms of economic relations.

The most recent Tankan survey covered 10,654 companies nationwide and was conducted from Nov. 13 to Dec. 13 with a response rate of 99.3 per cent, according to the Bank of Japan.