TOKYO (MNI) – The Bank of Japan’s closely watched Tankan corporate
sentiment survey released on Thursday showed that business confidence
among large manufacturers worsened in December from three months ago
after a rebound the previous quarter.

The Tankan survey headline index – showing current business
sentiment among large manufacturers – worsened to -4 in December from +2
in September.

The benchmark December figure came in weaker than the MNI survey’s
median of -2, with economists’ forecasts ranging from +5 to -5.

The diffusion index is calculated by subtracting the percentage of
companies reporting deteriorating business conditions from the
percentage of those reporting an improvement. A negative figure
indicates the majority of firms see worse business conditions.

The worsening of the leading figure underscores the threat posed to
Japan’s export-led recovery by the global economic slowdown, the strong
yen, and supply chain restrictions in flood-hit Thailand.

Corporate executives expect business conditions to worsen further
in three months, amid heightened uncertainty over overseas demand and
concerns about adverse effects of the European sovereign debt crisis.

The respondents in the December survey expect the headline index to
fall to -5 in March.

The Tankan survey also continued to show a gap in sentiment between
export-oriented manufacturers and other sectors dependent on domestic
demand.

Business confidence among large non-manufacturers improved for the
second consecutive quarter, rising to +4 from +1 three months earlier.

However, the index is expected to fall to 0 in March.

The sentiment index for small manufacturers improved to -8 from -11
in September, up for the second consecutive quarter, thanks in large
part to the boost to domestic demand from earthquake reconstruction
efforts.

However, this index is expected to worsen to -17 in March.

The index for smaller non-manufacturers rose to -14 from -19 in
September, also up for the second consecutive quarter.

But the index is expected to worsen to -21 in March amid ongoing
uncertainty over domestic demand amid severe labor and income
conditions, and a hollowing out of industry.

The Tankan also showed that capital spending plans by major
manufacturers are revised down from three months ago.

In December, major manufacturers said that they plan to increase
their capital spending by 6.2% this fiscal year, compared with the
10.1% rise estimated in the previous survey.

In the latest survey, 10,846 firms, or 98.9%, responded, compared
with 10,910 firms, or 98.8%, in the September survey.

The December survey was conducted from Nov 14 to December 14.

tokyo@marketnews.com
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