Tokyo, March 30 (Bloomberg) -- Japanese business confidence probably declined for thefirst time in more than two years in the first quarter as slower global economic growththreatens to stunt the recovery at home, economists said. The central bank's quarterly Tankan survey will show the key sentiment index for largemanufacturers fell to 1 point in March from 10 in December, according to the median of31 forecasts in a Bloomberg News survey. That would be the first decline sinceDecember 1998. The Tankan will be released Monday at 8:50 a.m., Japan time. The expected drop in confidence comes after some of Japan's biggest manufacturers,from Nippon Steel Co. to Mitsubishi Motors Co., lowered profit forecasts this quarter asorders and prices fell. Aiwa Co. and Sanyo Electric Co. are shedding thousands of jobs,which might sour sentiment by prompting consumers to spend less. Business confidence will fall for the next two quarters ``due to sluggish sales andearnings on falling exports, as well as growing uncertainty for the economic outlook inJapan and the rest of the world,'' said Mamoru Yamazaki, chief economist at BarclaysCapital Japan Ltd. The Bank of Japan cut interest rates to close to zero earlier this month and said it willpump more money into the banking system in a bid to kickstart the economy. With ratesalready pared to the bone, there's little more the central bank can do to boost growth. In the previous Tankan, released Dec. 13, the BOJ forecast the main index would drop to7 in March. A positive reading shows more companies are optimistic than pessimisticabout the economy. The main index turned positive for the first time in 2 1/2 years in thesecond quarter of 2000.
Closely Watched
The decline in stocks to a 16-year low earlier this month may also have shakenconfidence, economists said. The Nikkei tumbled 5 percent yesterday. The Tankan is considered the best gauge of business confidence in Japan. The BOJcanvasses about 9,000 companies, large and small, from automakers to shipbuilders tobanks, for their view on current and future conditions and earnings prospects. Confidence has deteriorated as economic growth in the U.S., the country's biggestexport market, slows. Exports posted the first back-to-back decline in almost two yearsin January and February, in volume terms. In response, manufacturers expect to cutproduction for the first time in seven quarters.
Profit Warnings
That's been reflected by a string of companies warning profits won't meet expectations.Nippon Steel cut its annual profit forecast 12 percent and Mitsubishi Motors said its lossthis fiscal year will be nearly double its previous forecast. NEC Corp. cut its annual earnings forecast 33 percent because of sliding computer chipprices and slowing computer sales. ``You have got to be honest and say'' the slowdownin overseas economies ``is a concern,'' said Daniel Mathieson, a spokesman for NEC.``We are just waiting and watching.'' With sales and profits falling short, companies are trimming investment budgets. Capitalspending was one of the main drivers of economic growth last year. After boosting investment 15 percent in the year through March 31, large manufacturersare expected to spend 2.6 percent less in the coming year, the Bloomberg surveyshowed. Hitachi Ltd., Japan's third-largest chipmaker, will cut investment in its chip business by20 percent next fiscal year. NEC will cut spending on its semiconductor business by 20percent.
Job Cuts
Other companies are making more drastic cuts. Stereo maker Aiwa Corp., which expects a second straight loss this fiscal year, said thisweek it will cut 30 percent of its 2,300 workers by next March. Sanyo Electric Co., which makes two-fifths of the world's mobile-phone batteries, saidthis week it plans to eliminate about 12 percent of its workforce to cut costs. What's ailing manufacturers will also hurt retailers, real estate agents, and otherbusinesses. Business confidence among non- manufacturers usually followsmanufacturers because they use more services as production rises. The confidence index for large non-manufacturers will probably fall to minus 13 in Marchfrom minus 10 in December, the Bloomberg survey showed. Capital spending amonglarge non-manufacturers is expected to fall 5.5 percent in the year starting April 1. ``The prospects for the Japanese economy aren't bright at all -- there's no denying that,''said Kenji Kaniya, a spokesman at McDonald's Japan Ltd. To compete for market share,McDonald's has cut the price of some of its burgers and plans to open more stores. Consumer spending, which accounts for about 60 percent of the world's No. 2 economy,shrank in the fourth quarter. Consumers, bruised by near-record unemployment andunsure how much pension income they'll get after they retire, are inclined to save ratherthan spend. Small companies are also affected, as many of them need business from larger firms.Economists expect the sentiment index for small companies to fall to minus 24 in Marchfrom minus 20 in December. Investment among those companies is expected to drop16.3 percent next fiscal year, the survey found.