The closely watched Tankan found sentiment among big manufacturing companies had slid more in September from June than economists or the firms themselves had expected. Sentiment among small manufacturers and non-manufacturers alike logged their worst readings on record.

The Tankan and the drop by Tokyo shares to fresh 12-year lows that it inspired, provided a grim sendoff for finance minister Kiichi Miyazawa. He leaves tomorrow for meetings in Washington with his group of seven (G7) counterparts as well as the International Monetary Fund and World Bank.

Companies across the boardpredicted cuts in spending on plant and equipment, usually a major engine for the economy, for the business year that began in April. They forecast falls in sales and profits for the period.

Major manufacturers registered a diffusion index of minus 51, much worse than the minus 38 in the June survey and the minus 34 that the companies predicted at that time for September. It was also worse than the average forecast of minus 44 among economists surveyed last week by Reuters.