Tokyo, April 1 (Bloomberg) -- Confidence among Japan's large manufacturers fell for first time in five quarters, a central bank survey showed, suggesting the nation's recovery from its third recession in a decade may be faltering. The Tankan index of sentiment at large manufacturers, the most closely watched gauge of confidence, fell 1 point to minus 10 in March. A gain to minus 8 was the median forecast of 40 economists in a Bloomberg News survey. A negative number means pessimists outnumber optimists. Companies such as electronic parts maker Koa Corp. say they have little reason for optimism as tumbling stock prices hurt confidence, while war in Iraq threatens to curb demand for exports. The slump in business confidence in the world's second- biggest economy mirrors declines in Europe and the U.S.
``There's not much to be optimistic about right now, and the war in Iraq adds to the uncertainty,'' said Yoshitatsu Kitahara, a general manager at Koa, a maker of parts for Toshiba Corp.'s liquid-panel display televisions and Sony Corp.'s Playstation2 video game consoles. Japan's economic growth slowed last quarter to 0.5 percent from 0.8 percent in the third quarter. A prolonged war in Iraq may slow growth further by denting global demand for Japan's exports, which accounted for half of last quarter's growth. The Tankan survey showed that all large companies with more than 1,000 workers plan to cut spending by 0.8 percent in the business year starting today. The survey of 8,428 companies was conducted between Feb. 24 and March 31, and 90 percent of responses came before the war started in Iraq on March 20.
Cutting Costs
``Now that it looks like the war is going to be longer than expected, companies are probably more pessimistic,'' said Yoshikiyo Shimamine, a senior economist at Dai-Ichi Life Research Institute. Koa, which has more than 3,000 employees, slashed its profit forecast for the business year that ended yesterday by 93 percent to 100 million yen ($842,000). ``We're looking for ways to cut costs, and job cuts are one option,'' Koa's Kitahara said. Bonds rose, driving 10-year yields to a record low. The No. 247 bond, which carries a 0.8 percent coupon and matures in 2013, rose 0.046 to 100.977 as of 2:32 p.m. in Tokyo. Its yield fell half a basis point to 0.695 percent, after dropping to a record of 0.685 percent. A basis point is 0.01 percentage point. ``The economy is getting worse,'' said Makoto Takahashi, an executive officer in charge of the fixed-income group at Sumitomo Mitsui Asset Management Co., with the equivalent of $106 billion in assets. ``Yields are going lower.''
U.S. Confidence
The Nikkei 225 Stock Average rose 0.1 percent to 7979.49 at 2:37 p.m. in Tokyo. The benchmark fell as much as 1.3 percent to 7866.67, within 4 points of the 20-year low touched on March 11. The yen weakened to 118.37 to the dollar at 2:39 p.m. in Tokyo from 118.09 late yesterday in New York. Large manufacturers in the survey said they expected the yen to average 118.03 to the dollar in the fiscal year that starts today. A U.S. report yesterday showed manufacturing in the Chicago area unexpectedly fell in March for the first time in five months, according to a National Association of Purchasing Management- Chicago survey. A European Commission survey released yesterday of 25,000 companies showed the confidence index declined for a third month. The survey was conducted in the first two weeks of March, as the U.S. and U.K. were preparing to attack Iraq.
Consumers
In Japan, large manufacturers with more than 1,000 employees planned to cut capital spending by 12.9 percent in the business year ended yesterday, the survey said, more than the 10.7 percent cut they forecast in December. They plan to increase spending by 2.9 percent in the current business year, the first gain in three years, and they expect sentiment to rise 2 points to minus 8 in the June survey. The Tankan, which means short-term outlook in Japanese, asks firms whether general business conditions are ``favorable,'' ``not so favorable,'' or `unfavorable' in light of current profits. Non-manufacturers may not help growth. Sentiment at large non- manufacturers rose 2 points to minus 14, the 25th straight quarter of pessimism, the today's report showed. Small non-manufacturers' confidence was unchanged at minus 36. Near-record unemployment and falling wages have hurt consumer spending, which makes up 55 percent of Japan's economy. Unemployment fell to 5.2 percent in February from a record 5.5 percent in January.
Central Bank
``Consumers are concerned about the security of their jobs,'' said Tsuyoshi Nishihama, a spokesman at department store operator Matsuzakaya Co. ``A long-term war couldn't be a good thing for confidence.'' Weak business confidence may prompt the Bank of Japan to pump more money into the economy when policy makers meet for two days starting April 7, economists said. At his first meeting last week, Bank of Japan Governor Toshihiko Fukui disappointed investors by keeping monthly bond purchases from commercial banks unchanged at 1.2 trillion yen. Bond purchases are the bank's main policy tool after it cut interest rates to near zero in March 2001. Fukui said the central bank would increase purchases of shares from banks by half to 3 trillion yen, rejecting calls from members of the ruling party to double purchases. The purchases are meant to limit losses from declining share prices at banks already burdened by 52.4 trillion yen of bad loans. //www.quote.bloomberg.com