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Japanese business sentiment logs longest fall since 2009

Tankan survey shows trade war and natural disasters weigh on companies

U.S. President Donald Trump's threat to slap 25% tariffs on imported cars and parts has Japan's auto industry worried.

TOKYO -- Confidence among Japan's large manufacturers weakened for the third straight quarter in the three months to September, the Bank of Japan's latest Tankan survey showed on Monday, reflecting concern over the U.S.-China trade war and a spate of natural disasters that have hit the country's booming tourism sector.

The closely watched index of large manufacturer sentiment came to plus 19 for the July-September period, down from 21 in the previous survey in June. Economists had expected a reading of 21, according to a survey by Nikkei group company QUICK.

The third consecutive fall marks the longest stretch of decline since September 2007 through March 2009, when the index slipped for six straight terms amid the global recession sparked by the U.S. financial crisis.

The latest reading is still well above the crisis level, however.

The index measures the percentage of companies that say business conditions are favorable, minus those that say the opposite. It is considered an important indicator of Japan's economic growth.

Capital Economists, a London-based research company, now predicts the country's annual growth will fall below 1% soon, from 1.1% in April-June.

Businesses are increasingly worried about the escalating trade tensions spilling over to Japan, as U.S. President Donald Trump threatens to impose tariffs of up to 25% on imported cars and auto parts. That move would deal a major blow to Japan's all-important auto industry.

Japan and the U.S. agreed in New York last Wednesday to start bilateral trade talks, with the Trump administration promising that no auto tariffs would be imposed while the negotiations are underway.

The survey showed that big manufacturers expect profits to fall 4.6% for the year ending March 2019, on an assumption that the yen will average 107.40 to the dollar this business year. In the previous survey, the rate was seen at 107.26 yen per dollar.

There are still some bright spots. The survey showed that large companies plan to increase their capital investment in the current fiscal year by 13.4%, only a tick lower than the 13.6% increase predicted in the previous June survey. Marcel Thieliant, an economist at Capital Economics, said "business investment will remain a key growth driver this year."

But confidence among nonmanufacturers was also dented, as earthquakes and storms hurt hotels and retailers. The Tankan index for large nonmanufacturers came to plus 22, compared with plus 24 in the June survey. The reading came in short of economists' average forecast of 23.

Western Japan suffered torrential rains in July, with more than 200 dead and thousands of homes destroyed. In September, a major typhoon hit the Osaka metropolitan area, causing a prolonged closure of a key international airport. A large earthquake soon followed on the northern island of Hokkaido, causing an extended blackout.

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