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Survey: Japan Confidence Dropping

December 15, 1997

TOKYO (AP) _ Business confidence at major Japanese companies has deteriorated seriously since October, according to a closely watched quarterly Bank of Japan survey released today.

The survey _ known as the ``tankan″ _ confirmed the growing view that the sluggish economy has been weakened even more by recent major financial failures in Japan and the Asian financial and economic crisis.

Separately, the chief of Japan’s Economic Planning Agency said it will be ``completely impossible″ for economic growth to climb above 2.0 percent in the fiscal year that begins April 1, 1998.

Among the more worrisome aspects for the economy revealed in the new survey is the drop in corporate expectations for three months ahead, which worsened to levels not seen in more than two years.

The tankan’s ``business condition diffusion index″ _ which measures the percentage of companies reporting conditions are improving minus the percentage seeing conditions worsening _ fell to minus-11 from plus-3 in the previous survey on Oct. 1.

The Bank of Japan said major companies expect the index to fall further to minus-15 three months from now. The central bank surveyed 9,359 companies.

``The only option that will improve sentiment for everyone is to lower income tax rates or to offer cash rebates,″ said Susumu Kato, senior economist at BZW Securities Japan Ltd.

The ruling Liberal Democratic Party is scheduled Tuesday to announce a package of stimulative measures, including planned corporate tax cuts.

Financial troubles left over from the burst of Japan’s speculative bubble of the late 1980s have dogged the economy. A string of companies _ including Yamaichi Securities _ have failed in recent months, and the government is considering a bailout for the debt-laden banking system.

Meanwhile, Koji Omi, chief of the Economic Planning Agency, said Japan’s economic growth for the next fiscal year will depend on tax reform and structural reform.

If these reforms are effectively carried out, growth should reach between 1.5 percent and 2.0 percent in fiscal 1998, Omi said.

The Japanese government has set a 1.9 percent growth target for the current fiscal year, but many analysts predict Japan’s growth may fall below 1.0 percent because of the shaky financial system and effects from Asian economic woes.

Japan attained a 2.9 percent growth for the fiscal year that ended March 31.

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