Confidence among Japanese manufacturers hit a near three-year low in the final months of 2012, a Bank of Japan (BoJ) survey showed Friday, adding to concerns about the already weak economy.
The central bank's quarterly Tankan survey came just days after official figures showed the world's third-largest economy shrank in the July-September period, fuelling fears it is slipping into recession.
They also come ahead of national polls Sunday that are expected to see Prime Minister Yoshihiko Noda ousted in favour of Shinzo Abe, who has promised to press more aggressively for a looser monetary policy.
The worst Tankan results since the start of 2010 would likely be "enough to persuade the BoJ to take additional easing steps at next week's meeting", Norio Miyagawa, a senior economist at Mizuho Securities Research and Consulting, told Dow Jones Newswires.
Sentiment among large manufacturers plunged to minus 12 from minus three in the third quarter, the survey showed. Economists had expected a reading of minus 10.
The figures represent the percentage of firms saying business conditions are good minus those saying they are bad and are a key measure used by the BoJ in formulating monetary policy.
"The survey suggested that there remains the risk that the expected economic recovery the BoJ assumes could come even later than the central bank is currently envisaging," said Yoshiro Sato, an economist at Credit Agricole.
However, the survey also showed that large Japanese firms were planning to boost their capital spending by 6.8 percent year on year through March, suggesting they see some pickup in the economy going into next year.
Financial turmoil in Europe, an export-sapping strong yen and a diplomatic row with major trade partner China have hit Japan's economy, dousing hopes it had cemented a recovery after last year's quake-tsunami disaster.
Japan's central bank has launched two major policy easing measures since September after its counterparts in the US and Europe also took steps to fight a slowdown in the global economy.
But critics, notably among them Abe, have called on the BoJ to take a more aggressive stance to spur growth.
Abe, head of the main opposition Liberal Democratic Party and a former prime minister, has repeatedly vowed to press the bank on the issue if he is elected to Japan's top political job.
He said he would pressure the central bank to buy government bonds -- effectively printing money -- to generate inflation, in a bid to drag Japan out of the deflationary spiral that has haunted its economy for years.
While the bank in October expanded its asset-buying programme by 11 trillion yen ($135 billion) to 91 trillion yen it decided last month to hold off any new measures despite warning the economy was "expected to remain relatively weak for the time being".
Abe's comments and expectations he will be successful on Sunday have sent the yen tumbling against the dollar and the euro.
Adding to the economy's more recent woes is a diplomatic row between Tokyo and Beijing over an East China Sea island chain that sparked a consumer boycott of Japanese products, including key exports such as cars and electronics.