TOKYO (AP) -- Sentiment among Japanese companies worsened during first quarter as high materials prices and a strong yen ate into their profits, a government survey showed Monday.
The dismal results add to the storm clouds surrounding the world's second-largest economy, with some analysts saying the Bank of Japan might be forced to ease monetary policy as soon as the first half of this year.
The large company business sentiment index -- which measures the percentage of companies saying that the economy will improve minus those saying it will get worse -- was at minus 9.3 in the January-March quarter. It was at plus 0.5 in fourth quarter, according to the survey released by the Ministry of Finance and the Cabinet Office.
The sentiment index for middle-sized firms stood at minus 14.1, while for small firms it was minus 30.4.
The figures were the lowest since the ministry began using its current survey methods in the April-June quarter of 2004, reflecting growing concerns among companies about the impact of the U.S. subprime problems on the Japanese economy.
Yet ''actual business sentiment now may be worse than this survey since it was taken before the yen rose to very high levels,'' said Hideo Kumano, chief economist at Dai-ichi Life Research Institute.
The survey was taken on Feb. 25, three weeks before the yen's surge to a 12 1/2-year high against the dollar.
''In addition, the low capital expenditure estimate is very negative for the BOJ,'' Kumano said. If corporate profits keep worsening as well, ''the central bank may be forced to cut its rates'' in the first half of 2008, he said.
The survey said companies expect capital expenditure to drop by 9.4 percent in fiscal 2008 starting April as profits fell by 2.9 percent in 2007.
Companies may also halt aggressive recruitment campaigns and cut wages gradually, sending already weak domestic demand into a tailspin.
