Japan business mood drops sharply

By Leika Kihara  |   2008-12-16  |     NEWSPAPER EDITION

JAPANESE business sentiment has suffered its sharpest crash in three decades, a Bank of Japan survey showed yesterday, and the central bank said no early turnaround was expected with the economy set to shrink next year.

But markets rallied despite the gloomy news from Asia's biggest economy, shored up by expectations that the White House would step in to prevent the collapse of the "Big Three" United States automobile manufacturers after the Senate's rejection of a bailout.

President George W. Bush told reporters aboard Air Force One on a flight from Iraq to Afghanistan that while some funds earmarked to shore up the US financial industry could be diverted to save the auto makers, no announcement was imminent.

"We're not quite ready to announce that yet," he said, adding that a decision would not take long.

Last week's collapse of bailout talks in the Senate sent world markets reeling as investors feared another ugly turn in a global crisis that began last year with the collapse of US subprime mortgages and which has now sent major economies, including Japan, into recession.

The BOJ's tankan survey, gauging big manufacturers' sentiment, fell to minus 24, slightly worse than expected, from minus 3 the previous quarter. It was the biggest fall since the oil crises of the 1970s and the bleakest outlook since 2002, when Japan was recovering from a slump sparked by a banking crisis.

The survey pointed to more economic gloom ahead.

"The extent of the worsening outlook for March is a bit shocking," said Susumu Kato, chief economist at Calyon Capital Markets Japan. "The figures were within expectations but the outlook for March is seen worsening further. Thus, it's hard to predict the bottom of the current economic cycle."