The biggest drop in confidence among Japan's large manufacturers since September 2001 reflected concern a recovery in the world's second-largest economy is faltering.
The confidence index for large manufactures fell to 14 points in March from 22 in December and a 13-year high of 26 in September, the Bank of Japan's quarterly Tankan business-sentiment survey showed yesterday.
The drop adds to signs that a recovery from recession has stalled, after reports this week showed falling factory production and household spending. Higher prices of oil, plastics and metals are curbing profits at companies including Matsushita Electric Industrial Co., leaving them less money to hire workers and buy machines, reported Bloomberg.
"Japan is struggling in the balance sheet recession period, and the government has depended on fiscal policy to maintain demand". Richard Koo, the Chief Economist at Nomura Research Institute in a seminar yesterday.
Koo said that Japanese companies are injecting the cash flow from China's business to pay down the debt on their balance sheets, which helps reducing the domestic demand in Japan. "The government had to lend a lot from the banks to make the economy boosted." He added.
The confidence index among mid-sized and small manafactures each fell 5 points to 6 and 0 from last December, while the confidence among large non-manufactures was unchanged at 11 points.
Japan's NIKKEI average rose 122.83, or 1.09 per cent, to 11692.37 at 14:02 pm in Tokyo. Does it mean optimists still outnumber pessimists on Japan's Economy?
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