The Bank of Japan released its Tankan quarterly survey for March on Wednesday. The diffusion index for large manufacturers’ current business stood at minus eight, down eight points from the previous survey in December when it was zero.
It is the first time in seven years the index has dropped below zero, since March 2013, right before the central bank started massive monetary easing. Corporate sentiments are rapidly cooling due to the global outbreak of the new coronavirus.
The latest survey covered about 10,000 companies nationwide between Feb. 25 and March 31, and 70% of the companies responded by the basic deadline of March 11. Thus, the global outbreak of the new coronavirus and the postponement of the Tokyo Olympics and Paralympics may not be fully factored in.
This is the fifth straight quarter showing deterioration in large manufacturers’ business conditions. The situation had been declining due to trade friction between the United States and China, but fell further on the spread of the new coronavirus. It is the worst deterioration since the December 2012 survey, which logged a drop of nine points.
Business confidence in the nonmanufacturing sector, which had been relatively strong, also fell sharply. The diffusion index for large nonmanufacturers worsened by 12 points to eight. This is the largest drop in 11 years since March 2009, when the index fell by 22 points due to the collapse of U.S. investment bank Lehman Brothers.
The index for “accommodation, eating and drinking services” dropped by 70 points to minus 59, reflecting a decline in the number of inbound visitors to Japan and people exercising voluntary restraint in going out. It is the worst level since the survey started to cover this field of business in 2004. The index for “services for individuals,” such as amusement parks and ski resorts, also logged a sharp drop.
Business sentiment among small and midsize companies is even more dire. The DI for small and medium-size manufacturers fell six points to minus 15. The index for the nonmanufacturing sector dropped eight points to minus one, the biggest drop since the March 2009 survey, which posted a drop of 13 points.
The DI for large manufacturers’ forecasts of business conditions in three months’ time was minus 11, and for large nonmanufacturers it was minus 1. Many companies expect the economy to continue to face extremely difficult conditions.