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GLOBAL ECONOMY

Japanese executives gloomiest in years

AFP, Tokyo
Japan's top executives are the gloomiest in four years due to a surging yen, high oil prices and a weaker global economy, the central bank said Tuesday, raising fears of a looming recession.
With a record-breaking profit streak for corporate Japan expected to come to an end this year, many companies are looking to scale down spending on new equipment and factories, the Bank of Japan's Tankan survey showed.
Confidence among major manufacturers tumbled to 11 in March from 19 in
December, slightly worse than market forecasts for a figure of 12, according to the poll, which covers a total of more than-10,000 companies.
"Corporates are becoming increasingly cautious given rising cost pressure, the rapid yen appreciation, and the deteriorating outlook for the global economy," noted Lehman Brothers economist Hiroshi Shiraishi.
It was the second straight quarterly decline, pushing sentiment down to the worst level since December 2003.
Japan's corporate sector has been a key driver of the recovery in the world's second largest economy after a
decade-long slump.
Helped by a weak yen and brisk exports, companies have racked up record earnings in recent years and invested heavily in new equipment and factories.
But many firms are now looking to scale down capital spending to cope with an expected drop in earnings, raising fears Japan's recovery could stall temporarily.
"The outlook for the Japanese economy and growth through the first half of the year is clearly at risk now," said Glenn Maguire, chief economist for Asia at Societe Generale in Hong Kong.
"It looks inevitable that the economy will experience a mild recession," he said, predicting that worsening conditions could prompt the BoJ to cut its interest rates, which have been on hold at 0.5 percent for more than oneyear.
Two key drivers of Japanese growth -- exports and business investment -- were faltering, but the recession should be quite shallow because companies are in better shape than during previous slowdowns, Maguire said.
Highlighting the gloomy outlook, top manufacturers predicted a further deterioration in the headline index to
seven in June.
The confidence index for large non-manufacturers also dropped in March to 12 from 16 in December.
The indices represent the percentage of firms experiencing favourable business conditions minus the percentage of those seeing unfavourable conditions.
Large manufacturers and non-manufacturers plan to cut their capital spending by 1.6 percent in the new fiscal year that began on Tuesday, while firms of all sizes and industries anticipate a reduction of 5.3 percent, the survey showed.