BOJ tankan improvement slows, capex outlook bleak

Japanese business morale improved more slowly in the fourth quarter and large manufacturers surveyed by the central bank planned record cuts in capital spending, as a strong yen threatened a fragile economic recovery. The Bank of Japan's quarterly tankan survey also showed lending to both big and small companies has barely improved from the previous survey in September. Small companies expect their outlook to worsen in the first quarter, reinforcing the government's fears that a strong yen and deflation will push the economy back into recession before an election for parliament's upper house next year. The government pressured the BOJ this month into launching a new funding operation that has lowered short-term interest rates. It has also criticised the central bank for ending measures that support corporate finance, saying the central bank made light of tight lending conditions for small firms. "The dollar/yen rate is moving lower than expected and small and mid-sized firms forecast their conditions will worsen over the next three months," said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo.