Japanese business confidence plunges due to crude oil price hike
(From The Japan Times July 5 issue)

原油高騰で景況感悪化：短観

The Bank of Japan's latest Tankan survey covering the April-June period shows that clouds are hanging over the Japanese economy. Business confidence among large manufacturers, for example, has deteriorated for three consecutive quarters. Their diffusion index — the percentage of firms reporting a favorable business environment minus that of firms reporting an unfavorable one — stood at 5, down six points from the March survey and the lowest level since September 2003.

The diffusion index of large nonmanufacturers, small manufacturers and small nonmanufacturers also worsened to 10 (down two points), minus 10 (down four points) and minus 20 (down five points), respectively.

The survey notes that rising costs of crude oil and other raw materials are impacting profits. It shows that manufacturers' sentiments concerning the purchase costs of raw materials have reached their worst level since 1980.

The rise in materials costs coupled with the slowdown of the U.S. economy in the wake of the subprime mortgage fiasco and the fall of the dollar's value against the yen are conspiring to affect export-oriented industries, and industries that use a large amount of raw materials. The diffusion index greatly deteriorated for large-scale car manufacturing, steel, shipbuilding/heavy machinery, textile and petroleum/coal products industries.

Rising crude oil costs are pushing up prices of consumer items. The nationwide consumer price index in May, not including perishable food items, was 1.5 percent higher than the year before. The government should do its utmost to prevent stagflation, which is a recession accompanied by cost-push inflation.

日銀が発表した6月の企業短期経済観測調査は景気の悪化を示した。大企業・製造業の業況判断指数（DI）は、プラス5へと3期連続で下落と03年9月以来の低水準で、中小企業はさらに厳しい。原油をはじめ資源高騰が収益を圧迫、製造業の販売価格判断DIは1980年以来最悪水準となった。

原材料価格高騰に加え、サブプライム問題による米経済減速や円高で輸出産業への打撃が予想され、自動車、鉄鋼、造船など大企業製造業の景況感悪化が目立った。政府は景気後退と物価上昇が同時に進むスタグフレーション防止に全力を注がねばならない。