Japan Manufacturer Sentiment Tumbles Most on Record

By Lily Nonomiya

March 23 (Bloomberg) -- Confidence among Japanese manufacturers slid the most in at least five years as a deepening global recession spurred record declines in exports and factory output, a government survey showed.

Sentiment among manufacturers was minus 66 points this quarter compared with minus 44.5 three months earlier, a joint survey by the Cabinet Office and Finance Ministry showed today. The drop was the biggest since the report began in 2004. A negative number means pessimists outnumber optimists.

Businesses said they will cut spending next fiscal year as the global collapse in demand erodes earnings. Prime Minister Taro Aso is preparing a stimulus package that may be twice as big as the 10 trillion yen ($104 billion) already pledged to revive an economy facing its worst recession since 1945.

“We’re far from an environment where companies can be optimistic,” said Yoshiki Shinke, a senior economist at Dai- Ichi Life Research Institute in Tokyo. “Companies may cut business investment more next fiscal year and we’re going to see job and wage cuts intensify.”

The yen traded at 96.18 per dollar at 9:48 a.m. in Tokyo from 95.93 before the report was published.

Finance Minister Kaoru Yosano told TV Asahi’s “Sunday Project” yesterday that additional stimulus of 20 trillion yen is “not out of line.”

Companies surveyed said they plan to slash spending on plant and equipment 29.4 percent in the year starting April 1, more than the 10.3 percent cutbacks projected this fiscal year.

Profit Outlook

Profits are estimated to slide 10.7 percent, less than the 41.2 percent drop anticipated in the year ending March 31.

“Companies think things will get better in the second half of the year; I think they’re over-optimistic,” said Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo. Adachi said a worsening job market will put pressure on consumers.

The ratio of jobs available to each applicant fell at the fastest pace since 1992 in January. Toyota Motor Corp., which is forecasting its first net loss in almost six decades, said last week it will recruit the fewest graduates in Japan in 14 years next fiscal year.

The ruling Liberal Democratic Party may ask the government to bail out large companies struggling to obtain cash, LDP Secretary-General Hiroyuki Hosoda said in an interview on March 18. “Should a big company go bankrupt, 10,000 people could lose their jobs,” he said.

Tankan Survey

Today’s report offers a hint of the results likely to emerge in the Bank of Japan’s Tankan survey due April 1. That report, the nation’s most closely watched gauge of corporate confidence, will probably show sentiment among large manufacturers plunged to the lowest in more than 30 years, according to economists surveyed.

Unlike the Tankan, which measures the level of confidence, today’s survey examines the degree of change in sentiment from the previous quarter.

The Bank of Japan is surveying companies through the end of this month, making the Tankan Japan’s most current gauge of business confidence. The responses for today’s survey were collected through Feb. 25.

To contact the reporter on this story: Lily Nonomiya in Tokyo at lnonomiya@bloomberg.net