Japan business mood slides, BOJ meets on funding

By Shigeo Kodama

TOKYO (Reuters) - Confidence among Japanese manufacturers fell at its sharpest pace on record in November, fuelling debate about rate cuts, as the Bank of Japan meets to consider measures to ease a squeeze on funding for firms.

Japanese stocks slid 5 percent and the yen firmed to a one month high, as global manufacturing figures painted a bleak outlook for the world's factories.

The BOJ will hold an emergency policy meeting from 1 p.m. to discuss measures to help ease a squeeze in credit markets as firms face a tough time securing finance to tide them over the end of the year.

No change in rates is expected at the meeting, which will be followed by news conference comments from Governor Masaaki Shirakawa, due for release around 4 p.m.

The Reuters Tankan, a monthly poll of big Japanese firms that tracks the BOJ's closely watched quarterly tankan next due on Dec. 15, showed business confidence had fallen sharply to its lowest in seven years.

With auto companies reporting sliding sales at home and abroad, the Tankan was another sign of a deeper and longer recession, as the financial crisis dries up demand for Japanese goods.

"The Bank of Japan's tankan survey will undoubtedly show quite a sharp deterioration in business sentiment. Capital spending is also expected to be revised down from September," said Naoki Iizuka, senior economist at Mizuho Securities.

"The Bank of Japan might cut interest rates to 0.15 percent at its Dec. 18-19 meeting and even opt to return to a quantitative easing policy early next year."