Business confidence among top Japanese executives has slumped to its lowest level in at least five years as the economic crisis batters corporate profits, a government survey showed on Monday.
The gloomy snapshot of Japan Inc showed that companies plan to slash their investment to weather the country's worst economic crisis since World War II.
Sentiment among large Japanese firms slumped to minus 51.3 points in the first quarter of 2009, down from minus 35.7 three months earlier, according to a joint survey by the finance ministry and the cabinet office.
The index fell for a second straight quarter, hitting the lowest level since comparable records began in early 2004.
The index represents the percentage of firms reporting improving business conditions minus that of companies reporting worsening conditions.
Executives expect sentiment to pick up slightly to minus 24.8 in the next quarter, but the government warned against optimism.
"Amid the global economic slump, the Japanese economy is worsening rapidly and is in a severe situation," a finance ministry official said.
Japan's corporate sector was a key driver of recovery in Asia's largest economy following the 1990s recessions, as companies enjoyed strong profits and invested heavily to expand their production facilities.
But the global downturn has caused demand for Japanese goods to dry up, prompting firms such as Toyota and Sony to shed thousands of jobs.
Companies expect pre-tax profits to drop 41.2 per cent on average in the fiscal year ending this month, and by a further 10.7 per cent next year, the survey showed.
Firms plan to cut investment in plant and equipment by 10.3 per cent this year and by 29.4 per cent next year.
Japan's economy logged its worst performance in almost 35 years in the last quarter of 2008, contracting at an annualised pace of 12.1 per cent.
The first quarter of 2009 may turn out to be just as bad and public spending of up to 20 trillion yen (208 billion dollars) may be needed to revive the economy, Finance Minister Kaoru Yosano said on Sunday.