By Leika Kihara and Tetsushi Kajimoto
TOKYO (Reuters) - Japan's business confidence soured to levels not seen since 2013, a closely watched survey showed, as the coronavirus pandemic hit sectors from hotels to carmakers and pushed the economy closer to recession.
The worsening corporate morale underscores the challenge Prime Minister Shinzo Abe faces in ensuring the pandemic does not erase the benefits of his "Abenomics" fiscal and monetary stimulus, deployed seven years ago to revive a stagnant economy.
The Bank of Japan's quarterly "tankan" survey on Wednesday showed big manufacturers' sentiment turned pessimistic for the first time in seven years as supply chain disruptions caused by the outbreak hit sectors across the board.
Service-sector sentiment also hit a seven-year low as travel bans and social distancing policies hurt consumption, clouding an already dark outlook.
Analysts warn firms are yet to fully factor in the coming business hit from the pandemic and will likely slash spending plans in months ahead.
"The tankan clearly shows a sharp deterioration in business sentiment and confirms the economy is already in recession," said Yasunari Ueno, chief market economist at Mizuho Securities.
"Given there's so much uncertainty, companies are probably setting tentative capital spending plans now. A downward revision to their expenditure plans is inevitable," he said.
The headline index measuring big manufacturers' sentiment worsened to minus 8 in March from zero in December, the tankan showed, compared with a median market forecast of minus 10.
It was the first time in seven years the big manufacturers' index turned negative, with slumping global demand pushing sentiment among big carmakers to the lowest level since 2011.
Big non-manufacturers' sentiment index worsened to plus 8 from plus 20 in December, the survey showed. Morale among big hotels fell to a 16-year low as the pandemic led to a plunge in overseas and domestic tourism.
Both manufacturers and non-manufacturers expect business conditions to worsen further three months ahead, the survey showed.
For now, big firms expect to increase capital expenditure by 1.8% in the fiscal year that began April, compared with a median estimate of a 1.1% decrease.
However, companies may revise down their spending plans in the next tankan survey in June depending on the extent of economic damage caused by the pandemic, a BOJ official told a briefing.
BACK TO DEFLATION?
About 70% of firms surveyed in the tankan turned in their replies by March 11, before lockdowns of cities intensified across the globe.