Japan’s Tankan Business Confidence May Plunge Most in 34 Years

By Jason Clenfield

Dec. 9 (Bloomberg) -- Sentiment among Japan’s largest manufacturers probably fell by the most in 34 years as an intensifying global slowdown stifles export demand and pushes the economy deeper into recession, a central bank survey is expected to show next week.

An index that measures confidence among large makers of cars and electronics will slide to minus 23 from minus 3, economists predict the Bank of Japan’s Tankan survey will show on Dec. 15. The drop would be the biggest since 1975, when the index fell 21 points in the wake of the first oil shock. A negative number means pessimists outnumber optimists.

Japan’s first recession since 2001 is worsening as companies cut production, jobs and spending in anticipation exports will keep falling. Canon Inc., which is predicting its first full- year profit drop since 2000, said last month it will delay construction of a 100 billion yen ($1 billion) factory.

“The world is in recession and Japan is still too much entangled with the world to ignore that,” said Jan Lambregts, head of Asia research at Rabobank International in Hong Kong. “It’s not of Japan’s making. But Japan is in quite a bit of trouble.”

Manufacturers last month said they plan the sharpest cuts to factory output in 35 years. Exports to Asia, destination of about half of the country’s shipments abroad, slid in October for the first time since 2002, as the global slowdown spread to the emerging markets that have supported Japanese auto and electronics makers in the absence of U.S. and European demand.

‘Drastic’

Bank of Japan Governor Masaaki Shirakawa said last month the economy’s deterioration has been “drastic.” The central bank, which cut its key lending rate to 0.3 percent in October, last week extended the types of corporate debt it accepts from lenders in an effort to unfreeze credit markets.

The yen’s 14 percent gain against the dollar since September has added to manufacturers’ woes by lowering the value of overseas sales and undermining the competitiveness of their cars, cameras and televisions. Panasonic Corp., the biggest maker of consumer electronics, said last month that gains in the currency would shave 22 billion yen ($236 million) from profit this year.

Canon, which makes 80 percent of its sales abroad, last month said it will cut output and postpone building a 100 billion yen factory in Oita Prefecture, southern Japan.

Economists predict that Japan’s largest companies will cut spending plans by 0.5 percent for the remainder of the year. In the previous survey, big companies said they would increase investment 1.7 percent this year.

Companies have also started to fire employees. Automakers including Toyota Motor Corp. and Mitsubishi Motors Corp. last month announced cuts to temporary staff, who economists say may only be the first wave of workers to lose their jobs as companies shut production lines.

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