- The Washington Times - Wednesday, April 1, 2009

TOKYO (AP) - The latest probe of Japan’s ailing economy points toward a new diagnosis: split personality disorder.

Pummeled by an unprecedented slump in global demand, confidence at major Japanese manufacturers has fallen to an all-time low, a key central bank survey showed Wednesday. But the worst may be over for big exporters who plan to boost output this spring amid slimmer stockpiles and nascent expectations for a recovery in overseas economies.

Meanwhile, the outlook is bleaker than ever for workers, households and non-manufacturers _ all casualties of the ongoing cutbacks by Japan’s global giants like Toyota and Sony.

Large manufacturers “have been bleeding heavily, but they have reacted the fastest of all corporations internationally by cutting back,” said Martin Schulz, senior economist at Fujitsu Research Institute in Tokyo. “This is why it’s such a split situation. It’s not good news for the domestic economy, but it is quite good for these companies overall.”

The world’s second-largest economy, which had relied on overseas demand to drive growth, has been hit particularly hard by a deep global slowdown that has sapped foreign sales of its cars and gadgets. A stronger yen has exacerbated the pain by eroding exporters’ earnings abroad.

In the Bank of Japan’s quarterly “tankan” survey for March, the closely watched sentiment index for large manufacturers stood at minus 58 _ the sixth straight quarter of decline and the worst reading ever.

The figure represents the percentage of companies saying business conditions are good minus those saying conditions are unfavorable. The lower the number, the greater the pessimism.

Big exporters have moved quickly to adjust by reducing shifts, suspending factory lines and slashing thousands of workers over the past few months. While their aggressive moves have suppressed inventory levels, it’s no comfort for workers and families who have lost jobs.

Japan’s unemployment rate rose to 4.4 percent in February, with analysts forecasting more job cuts in the months ahead, the government said Tuesday. Household spending was down sharply from a year earlier.

The tankan’s sentiment index for major non-manufacturers, who depend heavily on domestic demand, deteriorated more than expected to minus 31 from minus 9 in the December survey.

The sentiment index for big manufacturers is forecast to improve to minus 51 in the next survey in June.

Kyohei Morita, chief economist at Barclays Capital in Tokyo, describes the emerging cleft as a “widening gap between winners and losers in the months ahead,” with big manufacturers gaining the upper hand while the rest of the economy deteriorates.

“Despite signs that conditions will improve in manufacturing, especially among large companies, the situation looks likely to turn increasingly severe in non-manufacturing, especially among smaller firms.”

Nervous officials are scrambling to mount a bigger defense to stem further damage.

Prime Minister Taro Aso ordered his government Tuesday to come up with fresh stimulus measures, on top of about 12 trillion yen ($122 billion) in extra fiscal spending announced last year. Since taking office in September, Aso has launched two stimulus packages that include a cash handout to residents, lower highway tolls and support for the unemployed.

“I believe (the tankan) reflected Japan’s severe economy,” Chief Cabinet Secretary Takeo Kawamura told reporters Wednesday. “We must quickly compile a new economic package.”

The tankan’s dismal readings may also spur the central bank to take more action to help businesses raise money, though it is unlikely to cut its key interest rate _ already super low at 0.1 percent _ any further. It begins a two-day policy-setting meeting Monday.

Major manufacturers in the latest tankan reported tighter bank lending conditions from three month ago, with the index measuring lending attitudes down to minus 17 from minus 4.

The Bank of Japan surveyed a total of 10,441 companies between Feb. 23 and March 31, of which 98.5 percent responded.

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