Roundup: Nikkei drops 0.9 pct as BOJ survey shows glum outlook for large manufactures

The Nikkei stock index lost 0.90 percent Wednesday as a survey from the central bank showing that business conditions at larger manufacturers had worsened and negative outlooks would mean that investments will be reined in, soured the market mood.

The Nikkei 225 index lost 172.15 points to close the day at 19, 034.84, while the broader Topix index of all first-section issues fell 0.92 percent, or 14.12 points, to end at 1,528.99.

Traders here said that the Bank of Japan's (BOJ) quarterly " Tankan" survey of large manufacturers' sentiments released just before the opening bell weighed heavily on the market Wednesday as expectations were for businesses confidence to have improved in Q1 but the survey revealed things had remained largely flat.

The survey showed that confidence among large manufacturers stood at plus 12 in March, unchanged from the previous report and way of median expectations for a reading of 14, traders here said.

According to the survey, which is keenly eyed by the bank itself as well as the finance ministry as a leading economic indicator that can have a direct bearing on new policy, particularly those related to fresh stimulus, which the survey indicates is needed, as big businesses here have yet to break free from the constraints of last years tax hike, many businesses believe conditions will continue to deteriorate in the future.

The survey showed that of 11,126 companies, more than two- thirds of them believed that business conditions would continue to worsen.

Of the large manufacturers polled, 83 percent of them said that conditions were either "not so favorable" or "unfavorable," citing concerns of weak demand here and overseas for their products and fears that material costs will continue to rise due to the yen's weakness.

Local analysts said that perhaps the most pertinent statistic to come from the BOJ's survey is that companies intend to reduce capital spending by around 1.2 percent in this fiscal year, marking the first forecast for decline in the last two years.

"The report was quite weak and the outlook remains cautious. Stocks have done very well this year, but it seems the actual economy is still not able to surprise us positively," said Kenji Ueno, a senior investment manager at Sompo Japan Nipponkoa Asset Management.

Other strategists said that the government's plans seemed to be going a little awry as its reflation efforts have caused the yen to weaken which has increased makers' costs for importing materials, and tax cuts given to corporations recently were supposed to generate spending, but the outlook now suggests otherwise.

"Company managers remain very wary. Given that corporate taxes will be cut this year, expectations were strong for more business spending, so a reading of minus 1.2 percent is unacceptable," said Norihito Fujito, a senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities Co.

The yen rose on the back of the report, while conversely the dollar retreated to 119.85 yen from 120.06 logged in New York, in response to upbeat consumer confidence data in the U.S., but a firm yen is a negative for exporters who see their profit outlooks squeezed as well as their competitiveness in overseas markets.

As such, Toyota skidded down 1.8 percent to end at 8,236 yen, while Nissan Motor lost 2 percent to close at 1,199 yen.

Nikon Corp. dropped 1.6 percent to finish at 1,585 yen and mobile carrier SoftBank eased 0.74 percent to end the day at 6,928 yen.

Pharmaceutical issues collectively dragged the market down, with Takeda falling 2 percent to 5,877 yen and Santen Pharmaceutical Co. dropping 3.1 percent to end at 1,695 yen.

Shoe retailer ABC-Mart retreated tumbled 3.4 percent to 6,790 yen, following local reports that the firm will announce a fiscal- year operating profit of 40 billion yen, some way below median analysts' expectations.

Japan's third largest life insurer by revenue, Dai-Ichi Life, found favor however, leaping 2.5 percent to 1,788 yen, following reports the firm will take a more aggressive stance in returning profits from companies it invest in to its own investors.

Top lender Mitsubishi UFJ also closed in positive territory Wednesday, adding 0.67 percent to close at 748 yen, while Nikkei heavyweight Fast Retailing, operator of the Uniqlo chain of apparel stores, advanced 0.59 percent to close at 46,770 yen.

Trading volume on Wednesday rose to 2.51 billion shares on the Tokyo Exchange's First Section, up from Tuesday's volume of 2.36 billion shares, with declining issues beating advancing ones by 1, 353 to 415. Endi