Gloom returns to Japan's boardrooms

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Wednesday, March 28 9:09 AM SGT

Gloom returns to Japan's boardrooms TOKYO, March 28 (AFP) - After a two-year recovery in confidence, Japanese businesses have little to cheer about going into the new fiscal year as the US-led global slowdown exacerbates their woes at home.

The Bank of Japan's quarterly Tankan survey of the corporate scene, due out on Monday, is expected to show a reversal in confidence after the December poll found the recovery that started in mid-1998 had stalled.

"A range of things are behind this," said JP Morgan economist James Malcolm.

"There's the concrete factor of weakening external demand, and domestic ones of sentiment related to the stock market and concern about the stability of the banking sector, which have fed on themselves to depress expectations of capex (capital expenditure) and consumer spending," he said.

JP Morgan forecast the Tankan index of large manufacturers' confidence would fall sharply to minus four, from plus 10 in the December survey.

The index of large non-manufacturers' confidence will decline to minus 15 from minus 10, the investment bank predicts.

"Even in early January, corporate surveys showed an outlook of a very strong rebound in sentiment and that's certainly not happening. It's going to be a one-off sharp deterioration," Malcolm said.

The Tankan indices measure the difference between firms saying economic conditions are favourable and those saying they are unfavourable. A negative figure means a majority of firms believes conditions are unfavourable.

The last time the large manufacturers' reading stood on negative ground was a year ago.

Several Japanese companies have warned of poorer earnings in the fiscal year ending on March 31, blaming the US slowdown, a sluggish Japan and the weak Tokyo stock market.

The latest Tankan may have reduced significance after the Bank of Japan returned to zero interest rates this month. Past surveys have been closely analysed for an indication of their impact on monetary policy.

"Neither is there likely to be much direct impact on the markets," according to Barclays Capital chief economist Mamoru Yamazaki.

"If the results underscore a failure of the corporate sector to serve as an engine of the economy, however, we could see mounting pressure for progress related to structural reform, including the disposal of bad loans," he said.

In effectively returning to zero rates, a policy controversially abandoned in August, the Bank of Japan said it would maintain ultra-lax borrowing until core inflation stopped falling.

In so doing, the bank "has hit the ball back into the court of the politicians, bureaucrats and business leaders," said Merrill Lynch senior economist Yoshi Sakakibara.

With the Tankan expected to underline the deterioration in the business outlook, the onus was now on the government to launch the long-awaited structural reforms needed to revitalize the economy, he said.

Merrill Lynch forecast the large manufacturers' index would go down to plus three, and the large non-manufacturers' index to minus 12. Barclays Capital predicted plus two and minus 14 respectively.

Japan will continue to drift economically until the government gets serious about wiping out the banks' mountainous bad loans, thus freeing up credit for more viable companies, analysts say.

"Our real concern is rather the next quarter," commented Daiwa Research Institute economist Junichi Makino.

"Unless the US economy shows a steady recovery and Japan can solve the bad-loan problem, we cannot expect steady gains in corporate confidence," he said. http://asia.dailynews.yahoo.com/headlines/business/afp/article.html?s=asia/headlines/010328/business/afp/Gloom_returns_to_Japan_s_boardrooms.html

-- Carl Jenkins (somewherepress@aol.com), March 28, 2001


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