Japan’s Business Confidence Index Tumbles

Japan’s business confidence fell to its lowest level in more than two years last quarter as the nation’s economic slump deepened and terrorist attacks heightened prospects of a global recession.

The Bank of Japan’s tankan--a confidence index of large manufacturers that was released early today--tumbled to minus 33 from minus 16 three months ago, the lowest since June 1999. That was worse than economists’ expectations that the index would drop to minus 29. In June, companies--pinning their hopes to a U.S. rebound--forecast the index would rise to minus 14.

Also, NEC Corp. and Sony Corp. have joined Fujitsu Ltd., Nikon Corp. and other manufacturers in saying earnings will be worse than previously forecast. Prime Minister Junichiro Koizumi may be forced to backtrack on pledges to cut spending as the world’s second-biggest economy slides into its fourth recession in a decade.

The tankan was conducted between Aug. 29 and Sept. 28. About 70% of respondents completed the survey after the Sept. 11 attacks, the Bank of Japan said.

Large manufacturers said they expect exports to fall 4.8% in the fiscal year started April 1, versus the 1% gain they forecast in June.

Japan’s economic woes deepened before the attacks, with reports Friday showing the jobless rate held at a record 5% in August, consumer spending and prices fell and industrial production rose less than expected. Manufacturers said production would fall in September.

Businesses are paring back expansion plans. Companies said capital spending will fall 3.1% this fiscal year, more than the 1.3% decline estimated in June and a 1.5% rise last fiscal year.

The tankan indexes are calculated by subtracting the percentage of companies expecting conditions to worsen from the percentage that expect things to improve. Confidence among small manufacturers fell to minus 47 from minus 37. The index for small non-manufacturers dropped to minus 37 from minus 31.

The drop in business confidence and the prospect of a prolonged recession may force Koizumi to break his self-imposed $255-billion cap on new bond sales this year and slow plans to get the country’s biggest banks to write off their worst loans within three years.