Big business confidence at all-time low

Business confidence among large Japanese companies fell to a record low in the January-March quarter, reflecting surges in crude oil and other raw materials prices as well as heightened uncertainty surrounding the global economy, a government poll showed Monday.

The index of business conditions at companies capitalized at ¥1 billion or more sank from 0.5 in the previous quarter to minus 9.3 on an all-industry basis, entering negative territory for the first time in three quarters, according to the survey jointly conducted by the Cabinet Office and Finance Ministry.

The reading was the lowest since the government started compiling statistics for the quarterly poll in the April-June period in 2004, a Finance Ministry official said.

But the survey showed the business confidence index for large firms is projected to rebound in the coming quarters to reach minus 2.3 in the April-June period and 6.6 in the July-September quarter.

"The sectors which saw major declines in their business confidence in the January-March period are expected to recover later, with the impact of higher raw material prices projected to be smaller," the official said.

The index is compiled by subtracting the percentage of companies reporting deteriorating business conditions from that of firms reporting improving conditions.

Yasuo Yamamoto, senior economist at Mizuho Research Institute, said the confidence of manufacturers fell sharply as they were more vulnerable to soaring crude oil prices and the yen's appreciation against the dollar.

"Reflecting these results, I expect the upcoming Bank of Japan's 'tankan' survey will show a major drop in the sentiment of major manufacturers," he said of the BOJ's quarterly survey due out April 1.

Yamamoto pointed out that the rather optimistic projection by large companies for their business confidence outlook indicates firms generally see the challenging conditions at present as temporary factors.

The survey showed that firms of all sizes project a 2.9 percent dip in business 2007 pretax profits from business 2006, down from the previous forecast of a 1.0 percent fall, but 6.0 percent growth in business 2008, which starts April 1.

Mizuho Research's Yamamoto said companies will likely suffer severe conditions until the first half of business 2008, but that conditions will improve in the second half, as steps taken by the United States to cope with the subprime crisis are expected to alleviate credit fears by then.

The survey also showed companies in all industries project a 0.6 percent gain in capital investment in business 2007 from the previous year, a reversal from the forecast of a 0.4 percent fall in the previous poll.

For business 2008, those companies forecast their capital spending will be trimmed 9.4 percent from the previous year.

In the January-March period, the business confidence index for large manufacturers stood at minus 12.9, down from 5.2 for the previous quarter.

Business confidence deteriorated among makers of food, rubber, and information and telecommunication devices, mirroring commodity price rises and weakened demand for semiconductors.