Business confidence at major Japanese manufacturers tumbled to its lowest level in more than a year, a result of the heavy blow dealt by the March 11 earthquake and tsunami, the central bank said Friday.
But the worst may have passed, and signs point to improvement later this year. With parts shortages easing, factories are steadily restoring capacity.
The Bank of Japan's quarterly "tankan" survey of business sentiment shows that the main index for large manufacturers dropped to minus 9. The result undershot Kyodo News agency's average market forecast of minus 6.
The 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.
It is the survey's lowest level since March 2010 and a marked deterioration from three months ago, when the index stood at plus 6. Much of that survey was conducted before the March 11 disaster hit, so it did not fully reflect the impact of the devastation.
The earthquake and tsunami hit Japan's economy hard, wiping out wide swaths of the northeast 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 5 from plus 3.
Smaller enterprises reported lackluster numbers as well. The confidence index for medium-sized manufacturers fell to minus 12 from minus 4. The small manufacturers' index stood at minus 21 from minus 10.
The tankan offered a more encouraging assessment of the future, adding to evidence that the world's No. 3 economy is likely to recover toward the end of the year. The survey forecasts business sentiment among large manufacturers to rise to plus 2 over the next quarter.
"A slew of monthly indicators have already shown that business activities hit bottom as early as April, and will likely continue to improve in the coming months," said Junko Nishioka, chief economist at RBS Securities Japan.
Automakers in particular are predicting a dramatic jump in sentiment to plus 6 from minus 52 in Friday's survey. The car industry is a critical driver of manufacturing, and its fate is closely linked with the health of Japan's exports.
Factory output data released Wednesday confirm an emerging rebound. Led by the transport sector, Japan's industrial production posted the sharpest rise in nearly six decades in May.
Nissan Motor Co. Chief Executive Carlos Ghosn said earlier this week that overall production at his company has mostly recovered and will be back to normal by October.
The tankan, which helps guide monetary policy, showed that large companies overall plan to boost capital spending by 4.2 percent this fiscal year through March 2012.
The Bank of Japan surveyed 10,997 companies nationwide. About 98 percent responded.
The bank's next policy board meeting is scheduled for July 11-12. Separately, the government released economic data on unemployment, consumer prices and household spending that also hinted at improving conditions.
The country's seasonally adjusted unemployment rate fell slightly to 4.5 percent in May, though the figure does not include results from Fukushima, Iwate and Miyagi _ the three prefectures worst-hit by the earthquake and tsunami.
Household spending in May fell 1.9 percent from a year earlier, a slower decline than the previous month. Core consumer prices, which excludes fresh food, rose 0.6 percent from last year.
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