Many manufacturers continue to face power cuts and supply chain shortages Japan's big manufacturers have turned pessimistic about business conditions after the earthquake and tsunami, according to the Tankan survey.
The business sentiment index plunged 15 points to minus nine in June, the first negative rating in 15 months.The earthquake and tsunami that hit Japan on 11 March led to rolling power blackouts and parts shortages resulting in loss of production.
However, the manufacturers expect conditions to improve in coming months.
The sentiment index is derived by subtracting the percentage of respondents who say conditions are poor from those who say they are good.
The results of the Tankan survey have a bearing on Japan's monetary policy.
Positive outlook While the damage caused by the twin natural disasters has hit Japanese manufacturers hard, they expect the conditions to improve in the second half of the year.
The index for September quarter is forecast to rise to plus two.
Analysts said that as conditions on the ground improve, businesses are likely to bounce back."The headline index was a little weaker than expected [in June], but big manufacturers' sentiment is seen as rebounding firmly," said Takeshi Minami of Norinchukin Research Institute.
"The data confirmed the view that the worst is over and the economy will return to a moderate recovery led by manufacturers later this year," he added.
Data released earlier this week showed that factory output in Japan was recovering at a faster-than-expected pace.
Industrial production in May rose by 5.7% compared with the same month last year, the second successive month of rising output.
Stumbling blocks However, though the supply chain conditions and industrial output have started to improve, analysts warned the recovery could be derailed by various factors.
"There are risks to such a recovery, which will be based on reconstruction demand and exports," said Mr Minami.
If a political impasse were to delay reconstruction projects in the country it will have a detrimental affect on the economy, he said.
Hiroshi Miyazaki of Shinkin Asset Management Company added that a lot of Japanese companies were anticipating increased demand due to reconstruction activity after the quake and tsunami.
"If this demand doesn't come through as expected, there is a risk of a sharp adjustment," he warned.
Analysts said a combination of other internal and external factors may also hit the Japanese manufacturing sector.
"A slowdown in the global economy would slow the recovery in exports, while power supply problems in the summer may put a lid on factory output," said Mr Minami.
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