Japan's confidence at new low

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The Independent Online
TOKYO (Reuter) - Japanese corporate confidence plumbed new depths last month, falling to its lowest level since 1975, according to a survey by Japan's central bank.

The quarterly report contained a litany of gloomy numbers reflecting a slump nearly two years long. It showed that corporate sentiment plunged in November from already low levels.

The so-called 'diffusion index' for major manufacturers, a key gauge of business sentiment, dropped to minus 44 in November from minus 37 in August, meaning that November sentiment was worse than in 1987 when Japan suffered from the yen's rise.

The report also showed that large companies scaled back capital spending plans, forecasting a 4.7 per cent cut in the year to next 31 March, against a 7.7 per cent rise in 1991/2 and an August forecast of a 2.8 per cent fall.

Sales by manufacturing firms were seen falling 1.4 per cent in 1992/3 after a 1 per cent rise a year ago, the first such fall since 1987. Sales by non-manufacturers are expected to drop 2 per cent after a 1991/2 drop of 0.2 per cent.

Economists' interpretations of the report differed.

Some echoed a growing consensus that the economy was likely to touch the bottom in early 1993, as long as authorities eased credit and fiscal policy to get things going.

But others were more cautious. Gloomy outlooks by the non-manufacturing sector and smaller firms gave cause for concern, said Nobuyuki Saji of Nikko Research Centre.

'We can't yet confirm that January-March will be the bottom,' he said.

Others saw no cause for even cautious optimism. 'Basically the fundamentals are still terrible. Capital spending is falling like a rock and consumer spending is still weak,' said Peter Morgan, economist at Merrill Lynch Japan.

'The (central) bank is coming out with a lot of brave words saying there will be a recovery in the first quarter, but there is no way,' Mr Morgan said. 'We're looking for a modest recovery in the third quarter.'