Japan's Businesses Turn Pessimistic on Export Slump

By Jason Clenfield

Oct. 1 (Bloomberg) -- Japan's largest manufacturers turned pessimistic about their prospects for the first time in five years as the deepening U.S. financial crisis stifled demand in the country's export markets.

The Tankan index of confidence among big makers of cars and electronics slid to minus 3 points in September from 5 in June, a fourth quarterly drop, the Bank of Japan said today in Tokyo. The negative reading means that pessimists outnumbered optimists for the first time since 2003.

Japan's benchmark stock Nikkei 225 Stock Average has lost a quarter of its value this year as exports slumped and corporate profits fell. Fallout from the global credit crunch is slowing growth in China and other markets that Toyota Motor Corp. relied upon as sales to the U.S. slid.

``Global demand is going to worsen,'' said Tomoko Fujii, head of economics and strategy at Bank of America Corp. in Tokyo. ``Today's results only partly reflect the effect of the financial crisis.''

The Bank of Japan said between 70 percent and 80 percent of executives surveyed filled out their questionnaires by Sept. 10, before the bankruptcy of Lehman Brothers Holdings Inc. and the rescue of at least five banks by European governments.

Large manufacturers may now reconsider spending plans outlined in today's survey, said Martin Schulz, a senior economist at Fujitsu Research Institute Ltd. in Tokyo. The Tankan showed they plan to increase capital spending by 1.7 percent in the year to March 31.

`Different World'

``We're living in a different world now,'' said Schulz. ``The production cuts we've seen are just the beginning. Companies are going to start to adjust their whole strategies.''

The Nikkei 225 rose 1 percent today, rebounding from a 4.1 percent drop yesterday on speculation the U.S. Senate will approve the $700 billion bank rescue plan that has been stalled in Congress.

Large manufacturers said they expect the yen to rise to an average of 102.82 per dollar for the fiscal year, making exports less competitive. The yen traded at 106.06 at 4:01 p.m. in Tokyo from 106.06 before the Tankan was published.

Reviving Japan's economy will be one of the main issues Prime Minister Taro Aso confronts as he prepares for an election that must be called by September. Aso, who became Japan's leader last month, has pledged to cut taxes and boost spending to spur the economy.

Auto Production Drop

Japan's three largest carmakers -- Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co. -- all cut domestic production in August. Auto exports to the U.S. declined 30 percent in the month. Another report today showed domestic auto sales slumped in September, giving the country's carmakers the worst fiscal first half in 34 years.

Confidence among the smaller companies that employ about 70 percent of Japan's workers also fell to its lowest level in five years, the survey showed. Wages declined for the first time this year in August, according to another report today.

Akebono Brake Industry Co., a Toyota supplier with 3,800 domestic employees, is one of several parts makers that have cut profit forecasts in the past month, citing weaker U.S. car sales.

``We're affected by what happens to our customers,'' said Yoshio Arai, a spokesman at Akebono, a maker of brake and clutch parts. ``We'll need to cut output.''

To contact the reporter on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net