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Survey Shows Japanese Business Sentiment Worsening

August 28, 1996

TOKYO (AP) _ More leading Japanese companies are pessimistic about the country’s economic recovery, according to a closely-watched central bank survey released Wednesday.

Results from the quarterly ``Tankan″ survey came in below forecasts and were interpreted by financial markets as a sign that the Bank of Japan will keep interest rates low in order to keep stimulating the economy.

``The latest Tankan confirms that the economic recovery is losing momentum,″ said Cameron Umetsu, senior economist at UBS Securities Ltd. in Tokyo.

The Tankan’s main index for major businesses _ measuring the percentage of companies saying that conditions are improving, minus the percentage saying conditions are worsening _ was minus-7. The BOJ had predicted the index would be zero.

The index was at minus-3 in the previous survey released in June.

The results spurred a rally in the U.S. dollar and Japanese government bonds, both of which would benefit from a continuation of Japan’s current low interest rate policy. But the poor outlook on the economy pushed stocks lower in Tokyo.

BOJ officials said the results upheld its view that the economy is still recovering mildly. Masayuki Matsushima, director of the bank’s research and statistics department, downplayed concerns that the results could lead to a pause in the recovery.

Economists said the latest data suggest that Japan’s surprising annualized growth of 12.7 percent in the last fiscal quarter may have been an aberration and largely attributable to last September’s 14.22 trillion yen ($130 billion) fiscal stimulus package.

``The small companies haven’t shown the recovery that the BOJ was hoping for,″ said Mineko Sasaki-Smith, senior economist at CS First Boston in Tokyo.

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