Slump in Japan firms' confidence

Japanese exporters suffer amid the global financial downturn

Japanese business confidence has suffered the biggest drop in 34 years, fuelling fears that the economy may face a deep and lengthy recession.

The quarterly Tankan survey by the Bank of Japan (BoJ) showed that the business sentiment index had plunged to minus 24 from minus 3.

It was the fourth quarter in a row that the index had declined.

Many analysts believe Japan's central bank might cut its already low interest rate of 0.3% to boost the economy.

Some economists think it can happen this week, while others predict a cut in March.

The Tankan index fell to the lowest level in almost seven years.

"The Tankan is full of figures showing Japan's recession will be a deep and long one," said Yasuhide Yajima at NLI Research Institute.

'Deepest since 1970s'

Japan's economy recorded two months of negative growth in a row, entering its first recession in seven years.

The world's second-largest economy shrank by an annualised rate of 1.8% in the third quarter.

Japanese exporters have been suffering amid the global financial downturn and the yen's surge to a 13-year high.

Morgan Stanley economist Takehiro Sato predicted the current recession would be deeper than the downturn experienced earlier this decade and would "match that of the first oil shock in the early 1970s or the bubble collapse in the early 1990s".

The December index was largely in line with average expectations, but some analysts fear the worst is yet to come.

"Nonetheless, manufacturers expect conditions to deteriorate further, to minus 36, in the next survey," said Julian Jessop, chief international economist at Capital Economics.