Japan business confidence plummets

Business confidence at major Japanese manufacturers tumbled to its lowest level in more than a year as the impact of the earthquake and tsunami became clearer, the central bank said today, but it expects improvement later this year.

The Bank of Japan’s quarterly “tankan” survey of business sentiment shows that the main index for large manufacturers dropped to minus nine.

The figure represents the percentage of companies saying business conditions are good minus those saying conditions are unfavourable, with 100 representing the best mood and minus 100 the worst.

It is the survey’s lowest level since March 2010 and a marked deterioration from three months ago, when the index stood at plus six.

Much of that survey was conducted before the March 11 disaster hit, so it did not fully reflect the impact of the devastation.

But the tankan points to improvements ahead, adding to evidence that the world’s third largest economy is likely to recover toward the end of the year.

The survey forecasts business sentiment among large manufacturers to rise to plus two over the next quarter.

The earthquake and tsunami hit Japan’s economy hard, wiping out wide swathes of the north east coast, damaging factories and creating a nuclear-plant emergency that Japan is still struggling to address.

The mood among big non-manufacturers fell to minus five from plus three.

Smaller enterprises reported lacklustre numbers as well. The confidence index for medium-sized manufacturers fell to minus 12 from minus four. The small manufacturers’ index stood at minus 21 from minus 10.

The tankan is a key barometer of the country’s economic health that helps guide monetary policy.

The Bank of Japan surveyed 10,997 companies nationwide. About 98% responded.

The bank’s next policy board meeting is scheduled for July 11-12.