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Wednesday, 12 December, 2001, 09:57 GMT
Gloom increases at Japanese firms
A steel works in Japan
A key survey of business confidence in Japan has found that companies remain extremely pessimistic about their future prospects.

The latest Bank of Japan quarterly 'Tankan' survey, which questions almost 9,000 firms of all sizes, found that business confidence dropped again over the last three months and is trailing close to a 3-year low.

"The severe conditions continue but I cannot ease my grip on reform," said Prime Minister Junichiro Koizumi, who is pledged to austerity measures to limit state spending and force banks to foreclose on ailing firms.

But investors took comfort from the figures, which were slightly better than feared, sending Tokyo's benchmark Nikkei share index higher and strengthening the yen against the dollar.

Better than hoped

The Tankan's large manufacturers' index fell to minus 38 from minus 33, its worst level since March 1999, but most analysts had been predicting a number of minus 40 or worse.

The 'Tankan' measures the difference between those firms saying economic conditions are favourable and those saying they are not. A negative number means more firms are pessimistic.

"The figures are better than expected. They fell but they are not as grim," said Ron Bevaqua of Commerzbank in Tokyo.

"The headline number for the big manufacturers is showing a slightly smaller decline than expected, but it nonetheless confirms that it is on a downtrend," said Mamoru Yamazaki, chief economist at Barclays Capital in Japan.

Investment to fall

The index of large non-manufacturers' confidence also slipped to minus 22 from minus 17 in the previous survey.

The survey also found that large companies intended to reduce capital spending by 6.5% in the current financial year, which was worse than expected.

Shares gain

On the Tokyo Stock Exchange, both major share indexes recorded their biggest one-day gains in a fortnight.

The benchmark Nikkei average closed up more than 3% at 10,801.52, while the capital-weighted Topix finished the session up 2.1% at 1,036.17.

The yen was trading at 125.80 to the dollar by 0600 GMT after hitting an eight-month low earlier in the week in anticipation of the data.

Signs that banks are moving to tackle their exposure to bad debt from failing firms - seen a as a vital reform - also helped bolster sentiment on the stock market.

Giant Japanese bank Sumitomo Mitsui, revealed it may sell all of its 8.6 million shares in the US investment bank Goldman Sachs to cut its debts. It hopes to get about 74bn yen (592m) from the sale.

Deep in recession

Last week the latest set of growth figures confirmed that Japan had officially fallen into recession.

The economy shrank 0.5% in the July to September period compared to the previous three months, the second quarter in a row that it had contracted.

Japan is not alone in its difficulties. The United States is also officially in recession and Germany's economy is shrinking as well.

The global slowdown has hit many Japanese companies hard, as many of them depend on exports to expand sales.

Japan's Economy Minister Hezio Takenaka warned last week that the country's growth figures for October to December could be much worse.

And the Organisation for Economic Cooperation and Development (OECD) has already said that Japan's economy is likely to shrink by 0.75% this year, and by 1% next year.

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