Business sentiment among large Japanese manufacturers worsened in December for a fourth straight quarter to a nearly seven-year low, reflecting a global economic slowdown and spending battered by a consumption tax hike, the Bank of Japan's Tankan survey showed Friday.

The key index measuring confidence among companies, such as automobile and electronics makers, dropped from 5 in September to zero, the lowest level since a minus 8 was logged in March 2013, due partly to the protracted trade war between the United States and China.

The reading was weaker than the average market forecast of 3 in a Kyodo News poll. Many economists expect the Japanese economy could contract in the October-December quarter, dragged down by the consumption tax increase.

In a bid to bolster the country's economy, Prime Minister Shinzo Abe's Cabinet, earlier this month, approved a package of stimulus measures worth 26 trillion yen ($237 billion) to be financed by an extra budget for fiscal 2019 and the fiscal 2020 budget.

Despite the stimulus, the Japanese economy may face an uphill battle. Takeshi Minami, chief economist at the Norinchukin Research Institute, said consumer spending could fall further after the government's rebate program for cashless payments ends next June.

The Tankan results may put more pressure on the BOJ to consider additional monetary easing to bolster the world's third-largest economy and achieve the central bank's 2 percent inflation target.

Minami said the latest survey showed that the momentum toward the BOJ's 2 percent inflation target has lost some steam. "However, with support of the government's massive stimulus, the BOJ is expected to maintain the current monetary policy while continuing to signal further easing," he added.

The Tankan index for large nonmanufacturers, including the service sector, stood at 20, down from 21 in the September survey, a second straight quarterly decline.

The outcome was better than the average market projection of 16 but indicated there has been some negative impact on personal spending from the Oct. 1 consumption tax hike to 10 percent from 8 percent.

Spending in households with two or more people dropped 5.1 percent in October from a year earlier, declining at the fastest pace in more than three and a half years, according to government data.

The Tankan indexes represent the percentage of companies reporting favorable conditions minus the percentage reporting unfavorable ones.

The index for large manufacturers is forecast to remain at zero in the next quarterly survey as some people expect trade tensions between Washington and Beijing to ease while others see the global economic outlook remaining cloudy, a BOJ official said.

Among large manufacturers, 11 out of a total of 16 sectors posted declines from the previous quarter. Automakers' sentiment fell to minus 11 in December from plus 2 in September, dropping into negative territory for the first time since June 2016, while that of metal product makers slipped to minus 14 from minus 8.

"Many manufacturers still voiced concerns over the prolonged U.S.-China trade tensions and a global economic slowdown," the BOJ official told reporters.

In the nonmanufacturing sector, sentiment among retailers dropped to minus 3 from plus 4, logging the first minus figure since December 2014. The BOJ official also attributed the fall to a strong typhoon that caused severe damage in many areas of Japan in October.

But sentiment in the accommodation, eating and drinking services sector improved to 11 from 9, supported by robust spending by foreign tourists during the Rugby World Cup hosted by Japan.

Large companies -- those with capital of more than 1 billion yen -- in both manufacturing and nonmanufacturing sectors, said they plan to raise capital spending by 6.8 percent in the current fiscal year to March 2020, compared with a planned 6.6 percent increase cited in the previous survey.

Large manufacturers expected an exchange rate of 106.90 yen to the U.S. dollar for the second fiscal half through March, against the 108.50 yen figure in the September survey.

The BOJ surveyed 9,681 firms between Nov. 13 and Thursday, of which 99.6 percent responded.

==Kyodo

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