Japan pre-quake business mood better

AP News
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Posted: Apr 01, 2011 12:58 AM
Japan pre-quake business mood better

Before disaster struck, major Japanese manufacturers were feeling more confident about business.

The central bank's "tankan" survey of business sentiment showed that the index for large manufacturers climbed to 6 in March, up one point from December. Analysts expect confidence to fall sharply as companies tally the economic costs of the March 11 earthquake and tsunami.

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

The central bank said the result does not fully reflect the impact of the disaster. About 70 percent of companies had already replied to the tankan survey by March 11, central bank official Tetsuya Shiratori said.

Improvements in production and overseas demand had helped nudge the business mood higher over the last several months.

Data on Wednesday showed that industrial output climbed for the fourth straight month in February. The government, however, warned that production would plunge in the coming months.

The earthquake and tsunami, which devastated the northeast coast, crippled factories and disrupted the supply of parts for manufacturing. Major Japanese companies, including Toyota Motor Corp. and Sony Corp., were forced to suspend production due to a shortage of components.

Goldman Sachs economist Chiwoong Lee said the drag on business sentiment is likely to be exacerbated by power outages and ongoing problems at a crippled nuclear power plant. He also predicts a "sharp decline" in personal consumption amid widespread uncertainty.

The Bank of Japan will release additional data Monday that breaks out the disaster's impact on the tankan _ a key barometer of the country's economic health that helps guide monetary policy.

The central bank moved quickly after the earthquake to try to keep financial markets calm. It flooded the banking system with emergency liquidity so that banks could meet a surge in demand for funds.

Japan's government said the cost of the earthquake and tsunami could reach $309 billion, making it the world's most expensive natural disaster on record.

Cabinet members voiced strong opposition Friday to emerging calls from some lawmakers for the central bank to directly purchase government bonds from the finance ministry to help fund recovery efforts.

"It is impossible, and I will never have (the BOJ) do such a thing," economic and fiscal policy minister Kaoru Yosano told reporters, according to Kyodo News agency.

"Taking actions that ignore fiscal discipline would lead (Japan) to lose its international credibility," Kyodo quoted Yosano as saying.

The March tankan showed that sentiment among major non-manufacturers improved to 3 from 1.

Small and medium-sized enterprises reported lackluster numbers. The confidence index for medium-sized manufacturers fell to minus 4 from 1. The small manufacturers' index stood at minus 10 from minus 12. The negative figures show that even before the earthquake, pessimists outnumbered the optimists.

Big companies indicated they planned to cut capital investments by 0.4 percent this fiscal year, which begins Friday.

The Bank of Japan surveyed a total of 11,101 companies. About 96 percent responded.

Its next policy board meeting is scheduled for April 6-7.

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Associated Press writer Shino Yuasa contributed to this report.