TOKYO — Japanese business confidence fell for the first time in 2 1/2 years in the first quarter, the Bank of Japan's Tankan survey showed today.
The main index of large manufacturers confidence fell to minus 5 last month, down from 10 in December. Economists had expected the index to fall to 1.
The report sent the yen to a new 2 1/2-year low against the dollar, at 126.55 yen, versus 126.33 Friday in New York. But the yen then rebounded somewhat after Finance Minister Kiichi Miyazawa said the currency's fall has been too rapid. The yen has tumbled from 117 per dollar over the last month.
The Nikkei-225 stock index initially fell 1.2% after the report was released but was nearly flat, at 13,031, by midday.
"Industrial production, export volumes and stocks all moved sharply south in the first quarter," said Jeffrey Young, economist at Nikko Salomon Smith Barney. "The rapidity of the worsening outlook has been marked, prompting the BOJ to take the unprecedented step" of cutting rates by injecting more money into the banking system and pledging to keep borrowing costs near zero until consumer prices stop falling.
The decline in confidence, which was shared by small businesses and non-manufacturers, comes amid concern that the world's second-biggest economy is on the brink of another recession as global growth slows, eating into exports. With interest rates already pared to the bone, the central bank is urging the government to push through reforms to revive economic growth.
Some of Japan's biggest manufacturers, from Nippon Steel Co. to Mitsubishi Motors Co., lowered profit forecasts last quarter as orders and prices fell. Aiwa Co. and Sanyo Electric Co. are shedding thousands of jobs, which might sour sentiment by prompting consumers to spend less.
In the previous Tankan, released Dec. 13, the bank forecast the main index would drop to 7 in March. A positive reading shows more companies are optimistic than pessimistic about the economy. The main index turned positive for the first time in 2 1/2 years in the second quarter of 2000.
The Tankan is considered the best gauge of business confidence in Japan. The bank canvasses about 9,000 companies, large and small, for their view on current and future economic conditions and their earnings prospects.
Confidence has deteriorated as economic growth in the U.S., the country's biggest export market, slows. Exports posted the first back-to-back decline in almost two years in January and February.
In response, Japan's manufacturers expect to cut production for the first time in seven quarters.