TOKYO (Thomson Financial) - Sentiment among large Japanese companies
deteriorated for the second straight quarter in the first quarter, reflecting
growing concern about profits amid higher procurement costs and increased
uncertainty about demand at home and abroad, the results of a government survey
released Monday show.
In the fourth quarter of last year, the business sentiment index registered
the first fall in two quarters.
The business sentiment diffusion index for large companies dropped to minus
9.3 in the first quarter, the first negative reading in three quarters, from
plus 0.5 in the fourth quarter, the results of the quarterly survey by the
Ministry of Finance and the Cabinet Office show.
The index is now at its lowest since the government began compiling the data
in their present form in 2004.
The first-quarter headline number was much lower than the plus 2.4 predicted
by respondents in the previous survey.
The index is computed by subtracting the percentage of large companies
reporting deteriorating business conditions from the percentage of those
reporting improvement. A positive figure shows that the majority of respondents
see an improvement.
Respondents to the latest survey expect the headline index to rebound to
minus 2.3 in the second quarter and to plus 6.6 in the third.
The survey covered 14,095 companies with capital of over 10 million yen, and
11,127 responded.
"The latest survey endorsed the government's analysis that the recovery is
pausing," a Ministry of Finance official said.
"The adverse impact of higher procurement costs and uncertainties about the
global economy are making corporate Japan cautious and affecting sentiment," the
official said.
The ministry said sectors that saw a relatively sharp deterioration in
business conditions include the food processing, rubber, construction equipment,
wholesale, real estate and financial services and insurance sectors.
The survey shows a rapid deterioration of business sentiment among smaller
companies, which employ the bulk of Japanese workers, as they continue to have
difficulty in hiking prices, despite higher procurement costs, because they are
worried that this would hurt sales.
The first-quarter sentiment index for small companies, with capitalization
of more than 10 million yen but less than 100 million yen, was minus 30.4 -- the
lowest ever -- down from minus 18.7 in the previous survey.
The index for mid-size companies, with capitalization of more than 100
million yen but less than 1.0 billion yen, was minus 14.1 -- also the lowest
ever -- down from minus 2.6.
Falling profits
The latest survey found that the combined pretax profit before extraordinary
items of all companies is expected to decline by 2.9 percent in the fiscal year
ending March 2008, the biggest fall since 2004. In the previous survey,
companies were looking at a 1.0 percent fall in pretax profit.
Manufacturers are now projecting a 0.9 percent decrease in their combined
pretax profit because of falling profits in the chemical, fuel product and
ceramics and clay product sectors. Three months ago, they were expecting a rise
of 0.9 percent.
Ceramics and clay products are used widely in housing construction,
investment in which has dropped significantly since the government introduced
tighter building regulations in June. Housing starts fell at double-digit pace
for six straight months until December.
Non-manufacturers now see a 4.5 percent fall in their combined pretax
profit, instead of the 2.5 percent decline they were expecting three months ago,
because of smaller profits in the utilities, real estate and retailing sectors.
For the fiscal year ending March 2009, the respondents are forecasting a 6.0
percent rise in combined pretax profit.
Altogether, companies are now planning to increase their combined capital
investment by 0.6 percent in this fiscal year because of higher spending by
non-manufacturers. Three months ago they were expecting to reduce capex by 0.4
percent.
Non-manufacturers are now projecting a 0.8 percent cut in capex, less than
the 4.1 percent reduction they were expecting three months ago.
However, reflecting growing downward pressure on profits and uncertainty
about export demand, manufacturers have reduced their combined capex budget.
They are now expecting a rise of 2.6 percent in capex in this fiscal year. Three
months ago they were expecting a rise of 4.7 percent.
For the year to March 2009, the respondents are forecasting a 9.4 percent
cut in their combined capex, with manufacturers projecting a 6.1 percent fall
and non-manufacturers envisioning a 11.6 percent reduction.
"Japanese companies have a tendency to set their capital investment plans
cautiously, and as time goes by, they normally revise up these plans," the
official said.
The employment index -- a measure of the number of companies that say they
have too few employees minus those that say they have too many -- dipped to 17.2
at large companies in the first quarter from 18.1 in the previous quarter, owing
to a slowdown in demand overseas.
(1 US dollar = 99.89 yen)
kaori.kaneko@thomson.com
yasuhiko.seki@thomson.com
yas/jm/jm
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