Disastrous Tankan result may push BOJ to predict deeper recession+

TOKYO, April 1 Kyodo -
Business confidence among major Japanese manufacturers tumbled to its
weakest-ever level during the three months through March due to the global
economic downturn, the Bank of Japan said Wednesday, fueling expectations that
the central bank could predict a much deeper recession in fiscal 2009 than
previously stated.

The index of large manufacturers' sentiment came to minus 58, down from minus
24 in December, as exports slowed and industrial output declined amid the
global economic deterioration, the central bank said in its closely watched
Tankan survey.
The reading was the weakest since the BOJ began the survey in May 1974 and was
worse than the average market forecast of minus 54 in a Kyodo News poll.
Sentiment deteriorated for the sixth consecutive quarter and at the fastest
pace on record, the BOJ's quarterly survey showed, although it suggested some
companies are expecting a slight improvement in business environment.
For the next three months through June, the confidence index is expected to
rise 7 points to minus 51. It is the first time in 11 quarters that large
manufacturers have anticipated a recovery in the business climate down the
road.
The diffusion indexes represent the percentages of companies reporting
favorable business conditions minus those of firms describing an unfavorable
environment.
As for major nonmanufacturers, their confidence stood at minus 31 for the last
three months, down from minus 9 and was weaker than a projected minus 25. The
22-point drop marked the largest fall in 26 years.
On prospects, the index is expected to rise 1 point to minus 30 for the first
improvement in four quarters.
Among big manufacturers, carmakers, industrial and electrical machinery makers
logged the sharpest fall in confidence. Wholesale businesses marked a major
deterioration among large nonmanufacturers.
As for small manufacturers, the Tankan showed their confidence index declined
28 points to minus 57, the lowest since December 1998. It is expected to record
an additional 6-point fall over the next three months.
The index for small nonmanufacturers weakened 13 points to minus 42, the lowest
since March 2002, and is expected to slide further by 10 points during the
April-June quarter.
Masaaki Kanno, chief economist at JPMorgan Securities Japan Co., said he sensed
a ''gap'' between large and smaller firms in how quickly they can adjust to the
current hardship.
''Large companies foresee to make adjustments at a relatively early date, but
small and medium-sized companies will have to continue'' struggling under
pressure from the economic downturn, he said.
''The latest Tankan pressures the BOJ to support corporate finance further and
keep monetary-easing policies,'' Kanno also said.
With those Tankan results, the BOJ is close to a decision on cutting its
forecast for the nation's economic performance in the just started fiscal year,
sources close to the matter said.
The bank said earlier that Japan's real gross domestic product would contract 2
percent in fiscal 2009. The BOJ is likely to announce the downgraded projection
on April 30 when its Policy Board will meet and release a biannual economic
outlook report, the sources said.
A 2 percent contraction would already be the worst negative growth rate for the
Japanese economy since the end of the World War II. Private-sector economists
are forecasting that the economy could shrink around 4 percent in the business
year.
The decision-making board is also expected to discuss whether to take further
emergency steps to fight the current recession while holding its key interest
rate steady at 0.1 percent.
Overall business trend remains gloomy, the Tankan showed, with many companies
cutting or planning to cut their business investments, as well as payrolls on
sluggish earnings estimates. Smaller firms continue to face trouble raising
operating capital as banks are reluctant to extend fresh loans for fear of
default.
The government admitted the Tankan showed the ''worst-ever'' result, saying it
reflects Japan's ''difficult economic environment.''
Chief Cabinet Secretary Takeo Kawamura told reporters that the administration
of Prime Minister Taro Aso will rush to work out an additional economic
stimulus.
The survey also showed big companies in both manufacturing and nonmanufacturing
industries plan to cut their business investments by an average 6.6 percent in
fiscal 2009 from the previous business year. While manufacturers are to reduce
capital spending by 13.2 percent, nonmanufacturers are likely to cut by 2.7
percent.
Employment conditions have also deteriorated rapidly.
The index gauging how much excess companies have in their payrolls expanded 27
points to 35, the highest in seven years, for large manufacturers and gained 10
points to 3 for major nonmanufacturers.
On corporate finance, the Tankan showed companies face burgeoning difficulty in
raising necessary capital through loans from banks and other financial
institutions at a time of a global credit crunch.
The index measuring how easy it is to borrow money from financial institutions
was down 13 points to minus 17 for big companies and dropped 5 points to minus
14 for small firms.
Large companies also face difficulty issuing commercial paper, or short-term
corporate debt, amid counterparty risks in the debt market. The index to
measure how easy it is to issue CP deteriorated by 4 points to minus 24 for big
firms, the lowest since the BOJ started recording comparable data in 2003.
As most of the companies downgraded their earnings estimates for fiscal 2009,
large manufacturers project their pretax profit to fall an average 19.7 percent
and big nonmanufacturers expect a 6.4 percent decline.
The BOJ surveyed 10,441 companies between Feb. 23 and March 31, receiving
responses from 98.5 percent of the firms, it said.
==Kyodo