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Monday, 1 October, 2001, 10:38 GMT 11:38 UK
Survey raises Japan recession fears
Japan's finance minister, Masajuro Shiokawa
Masajuro Shiokawa: "Better to come"
Evidence that business confidence in Japan slumped over the summer has sharpened fears that the country is on the verge of its fourth recession in a decade.

The figures come from a quarterly Bank of Japan survey covering the July to September period, and take in the first few days following the terrorist attacks on the US.

The figures are very bad, but looking ahead I do not see the conditions being so bad... There is a need for further, aggressive economic steps

Masajuro Shiokawa
Japanese finance minister
The survey, known as the "tankan", is seen as a key indicator for Japan's financial health.

The headline "diffusion index" figure of minus 33 undershot both last quarter's result of minus 16 and economists' forecasts of minus 28, making three successive quarters of decline.

The 17-point slide is almost exactly equal to that seen immediately after the 1998 financial crisis.

Recession fears

Observers said the survey had increased the likelihood that forthcoming economic output data will, for the second quarter running, record negative growth.

A recession is officially defined as two successive quarters of economic contraction.

Faichra MacCana at West LB Securities in Tokyo, told World Business Report that a recession could potentially last for quite a long time.

"There was not a single indicator which was good or gave any sign of hope," he said.

Grim reading

Japan's Finance Minister Masajuro Shiokawa admitted the tankan made grim reading, but added that the worst was probably over.

"The figures are very bad, but looking ahead I do not see the conditions being so bad," Mr Shiokawa said.

Nonetheless. the government would keep its promises of tough, speedy action to restore the economy to health, he said.

"There is a need for further, aggressive economic steps. We shall implement various measures in a concentrated fashion."

Ron Bevaqua at Commerzbank in Tokyo, told World Business Report that although things are bad and would probably get worse "it is not yet at a point where there is a crisis".

Worse to come?

According to the Bank of Japan, most of the responses to the survey - around 70% - came in after September 13, and some are likely to have reflected the fears that the attacks on the US will further depress the global economy.

But that still leaves a significant amount of doom and gloom for the next tankan, economists said.

"I think as we get more news that Christmas sales in the US will not be good, that will hurt Japanese manufacturers," said Kazuhiko Ogata, senior economist at HSBC Securities in Tokyo.

The survey, of 9,000 companies of varying sizes, showed that large companies are looking at a 3.1% fall in capital spending in the year to next March.

As for profits, the respondents to the survey said earnings for the current full year are likely to drop 18.7%, against a 32.3% rise last year.

"The worse figures are the momentum of decline in the manufacturing sectors," Mr MacCana said.

The tankan also revealed pessimism among small manufacturers, reporting an index figure of minus 47 for the sector, down from minus 37 in June.

On the stock market, the benchmark Nikkei 225 index ended 2.0% higher on Monday.

Investors had "already prepared" for a gloomy tankan, Akio Yoshino, general manager at SG Yamaichi Asset Management, said.

Faichra MacCana, West LB Securities Tokyo
"The Bank of Japan has done what it can to keep money pumping through the system."
Ron Bevaqua, Commerzbank Tokyo
"The burst of the High-tech bubble severely affected Japan."
See also:

27 Sep 01 | Business
Japan's finances questioned
26 Sep 01 | Business
Japan's slowdown to hit Asia
26 Sep 01 | Business
Japan car sales rise
20 Sep 01 | Business
Rescue plan for Japan's banks
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