Japanese confidence dips .hurriyet2008-detailbox-newslink { font-family: Arial, Helvetica, sans-serif; font-size:13px; font-weight:bold; text-decoration:none; color:#000000;} .hurriyet2008-detailbox-newslink:hover { font-family: Arial, Helvetica, sans-serif; font-size:13px; font-weight:bold; text-decoration:underline; color:#990000;} TOKYO - Japanese business confidence suffered its steepest plunge in three decades, the central bank said yesterday, raising fears the recession will be the worst since the economic bubble burst in the 1990s.

The grim figures sparked new speculation that the Bank of Japan may slash interest rates again to almost zero to revive the economy as its main engines of growth - exports and business investment - grind to a halt.

The bank's Tankan survey painted a bleak picture of Japan Inc., which expects earnings to slump almost by a quarter next year, as it was hit by weak demand and a surge in the yen to a 13-year high against the dollar.

Confidence about large manufacturers tumbled to minus 24 in December from minus three the previous quarter, according to the poll of more than 10,000 firms. It was the sharpest fall in the index since the oil shock of the early 1970s, taking confidence down to the lowest level since early 2002, when it was at minus 38.

Worse than thought
The results "confirmed that this recession will far surpass the downturn fuelled by the IT collapse in the early 2000s in terms of both scale and breadth," warned Morgan Stanley economist Takehiro Sato. "It will match that of the first oil shock in the early 1970s or the bubble collapse in the early 1990s," he predicted.

Major manufacturers painted a woeful outlook of business prospects, forecasting a further slump in confidence to minus 36 in March.

The index measures the percentage of firms that think business conditions are good minus those that think they are bad.

Big Japanese manufacturers expect a 24.2 percent slump in pre-tax profits in the current financial year to March, the survey showed. Sales are expected to edge up just 0.9 percent from the previous year.

"The economy is worsening very quickly," said Hiroshi Watanabe, an economist at the Daiwa Institute of Research. "Automakers and electrical machinery companies are axing jobs. The wave of job cuts will spread to the service industries such as auto dealers, retailers and restaurants."

Large companies of all industries plan to trim their investment in new plants and equipment by 0.2 percent on average this year, in marked contrast to sharp increases in corporate capital spending seen in recent years.

Some analysts believe Japan's central bank will be forced to cut its super-low interest rates again from the current level of 0.3 percent, possibly as soon as Friday.