UPDATE 1-Japan business mood to worsen after quake -BOJ tankan

* Big manufacturers see conditions worsening 3 months ahead

* BOJ provides breakdown of tankan replies to gauge post-quake mood

* BOJ likely to downgrade economic view – sources

(Adds analyst quote, details)

By Rie Ishiguro

TOKYO, April 4 (Reuters) – Big Japanese manufacturers expect business conditions to worsen
in the next three months, responses to a Bank of Japan survey collected after a devastating
March 11 earthquake showed, as rolling power blackouts and a nuclear safety crisis threaten to
delay the country’s return to a moderate economic recovery.

But the degree of deterioration was less than analysts had expected, leaving them wondering
how much stock they should put in the results.

In an extraordinary move to provide a clearer picture of how firms perceived the effects of
the quake, the BOJ separated figures in its tankan survey of corporate sentiment for March,
issued last Friday, into responses obtained before and after the earthquake.

The post-quake index for big manufacturers’ sentiment was plus 6 for March, unchanged from
the full survey. But the index for June was seen at minus 2 against the full survey’s plus 2,
indicating that big manufacturers expect to turn pessimistic.

“I think there must be some technical issue with formulating the number from receiving the
surveys. I think many firms will have filled out the surveys before the quake and sent them
after the quake, so this reading may be misleading to gauge the impact of the quake,” said
Masamichi Adachi, senior economist at JPMorgan Securities Japan.

“I think the BOJ also realises this (survey) may be a little misleading to gauge the impact.
They will still be cautious on the outlook and our view is the BOJ needs to ease further in this
week’s policy meeting. However, the market consensus is for staying on hold.”

The BOJ is expected to revise down its economic assessment at a two-day rate review that
ends on Thursday, sources familiar with the central bank’s thinking said, and may consider
easing policy further if the board is convinced that the impact of the disaster is already great
enough to sharply delay Japan’s return to a moderate recovery. [ID:nL3E7F105M]

For now, though, the dominant market view is for the central bank to stand pat on monetary
policy this week and wait for more clues on the extent of the damage, and how easing steps taken
just days after the quake will support the economy.

The data separating out the BOJ tankan results is the first to quantify the impact of the
quake, tsunami and subsequent nuclear crisis on business confidence. But the BOJ warns against
reading too much into the tankan because its post-quake sentiment index only takes into account
the views of 23.6 percent of the survey’s respondents.

A monthly PMI survey last week showed Japanese manufacturing activity slumped to a two-year
low in March and posted its steepest monthly decline on record as the earthquake and tsunami
disrupted supply chains and production operations. [ID:nL3E7EU3P4]

(Additional reporting by Tetsushi Kajimoto and Leika Kihara; Editing by Edmund Klamann)

UPDATE 1-Japan business mood to worsen after quake -BOJ tankan