Japanese business sentiment worsened for a second straight quarter in the three months to December and will barely improve early next year, a central bank survey showed, as the global slowdown and a territorial row with China hit the export-reliant economy.
The dismal reading heightens the case for the Bank of Japan, already under intense political pressure for bolder action ahead of Sunday's general election, to ease monetary policy further next week to support an economy seen as already in recession.
The headline sentiment index for big manufacturers worsened to minus 12, down 9 points from September and worse than a median market forecast of minus 10, the BOJ's closely-watched tankan quarterly survey showed on Friday.
A business outlook index for March stood at minus 10, showing that manufacturers expect conditions to barely improve in the months ahead with no clear signs yet that overseas growth will pick up soon.
Service-sector sentiment worsened to plus 4 from plus 8 in the September survey, against a median forecast of plus 5.
The tankan report, a key touchstone for BOJ policymakers, also showed that big firms expect a 6.8 percent rise in capital spending in the fiscal year to next March. That was roughly unchanged from a 6.4 percent rise projected in September and stronger than a median forecast for a 5.0 percent increase.
Japan's economy shrank for a second straight quarter in July-September and analysts expect another contraction in the final three months of this year as a territorial row hit sales of Japanese goods in China, adding to the pain for exporters already suffering from a strong yen and weak global demand.
Many analysts agree with the BOJ that Japan will emerge from mild recession early next year, although central bankers fret that any recovery will be slow and weak.
The BOJ is thus likely to ease policy at its Dec. 19-20 meeting, sources say, to prevent risks such as the potential fallout from the U.S. "fiscal cliff" from further threatening Japan's recovery prospects.
The tankan's sentiment indexes are derived by subtracting the percentage of respondents who say conditions are poor from those who say they are good. A negative reading means pessimists outnumbered optimists.
The survey is largely in line with showings in the Reuters Tankan last week that manufacturers' sentiment soured from three months ago. That survey closely correlates with the BOJ tankan.
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