Business sentiment among large Japanese manufacturers in June plunged to its lowest in more than a decade due to the economic fallout from the novel coronavirus pandemic, posting a decline for the sixth straight quarter, the Bank of Japan's Tankan survey showed Wednesday.
The key quarterly index measuring confidence among companies such as automobile and electronics makers plummeted to minus 34 from minus 8 in March, against the average forecast of minus 31 in a Kyodo News poll, the lowest reading since June 2009.
The global spread of COVID-19 has forced many manufacturers to temporarily halt production due to the disruption of supply chains and falling demand for products, with all 16 sectors logging declines from the previous quarter.
Sentiment among automakers crashed 55 points to minus 72 in June, the second-weakest figure since June 2009 when it posted minus 79, due to falling demand for products around the world.
"We received many opinions (from the companies surveyed) that falling demand for automobiles has weighed on a wide range of manufacturing sectors in the country such as the iron and steel industry," a BOJ official said.
Domestic production of eight major Japanese automakers slumped a record 61.8 percent in May to 287,502 vehicles, compared with a year earlier, due to factory closures and weak demand, the companies said Monday.
The BOJ decided at its June policy meeting to further boost its 75 trillion yen ($700 billion) corporate support measures to 110 trillion yen, in line with the government's 31.91 trillion yen ($298 billion) second extra budget to spur the economy, including new programs focusing on assistance for small businesses.
However, the Tankan survey showed many Japanese companies remain in a severe economic state amid concerns over a potential second wave of the virus.
The index for large nonmanufacturers, including the service sector, dived to minus 17 from 8 in the March survey, compared with the market consensus of minus 18.
The reading fell into negative territory for the first time since June 2011 in the wake of a massive earthquake and tsunami in northeastern Japan in March the same year, and posted the largest-ever decline, the BOJ said.
The deterioration stemmed primarily from the fact people refrained from going out, even after the government lifted a stay-at-home request in Hokkaido, northern Japan, and the Tokyo metropolitan area in late May.
The reading for accommodation, food and beverage services tanked to minus 91, the weakest figure since a poll of the sector was first done in March 2004, while the index for services for individuals, such as theme parks and golf courses, logged a record minus 70, due to a sharp decline in inbound tourists to Japan and sluggish consumer spending, the BOJ official said.
Only the retailing sector posted a rise from the previous quarter among 12 nonmanufacturing categories, posting a reading of 2 against minus 7 in March.
Demand grew for online shopping and some electronics, such as personal computers needed for teleworking, amid government requests that people stay at home, the official said.
"The Tankan survey results reflect slowing economic activity following the declaration of the state of emergency in Japan and lockdowns in the United States and Europe," said Takeshi Minami, chief economist at the Norinchukin Research Institute.
"Manufacturers are likely to face overproduction if a recovery in demand takes a long time to return to pre-pandemic levels. It means that even without a second wave of virus infections, bankruptcies and job cuts are expected to rise in the future," he added.
As for the outlook, the index for large manufacturers is expected to slightly recover to minus 27 in the coming months amid expectations the spread of virus infections will be somewhat contained, though many companies remain cautious about a possible second wave, the official added.
The reading for the whole nonmanufacturing sector for the next quarter survey is expected to hover at minus 14, slightly above the current level, according to forecasts in the latest Tankan.
"Managers of companies no longer expect a V-shaped recovery" based on the survey, Minami said.
The Tankan index represents the percentage of companies reporting favorable conditions minus the percentage reporting unfavorable ones.
Large companies -- those with capital of more than 1 billion yen ($9.3 million) -- in manufacturing and nonmanufacturing, said they plan to increase capital spending by 3.2 percent in fiscal 2020 through March 2021, compared with the previous year.
Big manufacturers expected an exchange rate of 107.87 yen to the U.S. dollar for fiscal 2020, almost unchanged from the 107.98 yen assumed in the March survey.
The BOJ surveyed 9,577 companies, of which 98.9 percent responded.