By Leika Kihara and Tetsushi Kajimoto

TOKYO (Reuters – Japanese confidence in business plummeted in the first quarter. The survey was conducted by the quarterly central bank on Friday. Companies were affected by supply disruptions, rising raw materials costs, and the Ukraine crisis.

The Bank of Japan’s carefully-watched survey “tankan”, which showed that big businesses expect worsening conditions three months out, lowered the optimism for the fragile economy’s recovery.

BOJ policymakers are going to be weighing the results when they produce new inflation projections and quarterly growth forecasts at their next meeting in April 27-28.

The tankan revealed that the headline index measuring big manufacturer sentiment fell to plus 14 from plus 17. It was down from plus 17 in December. This compares with a median forecast of plus 12.

Also, the sentiment index for big non-manufacturers declined to plus 9, from plus 10, three months prior. Market forecasts had called for a reading at plus 5.

Also, the tankan showed that big companies will increase their capital expenditure plans by 2.2% in the current fiscal year which began in April. This is contrasted with market expectations for a 4.0% rise.

Rising fuel and food prices, as well as rising import costs from Japan due to a weaker yen have caused more pain for Japan’s still recovering from the effects of the coronavirus pandemic.

Analysts predict that Japan’s core consumer inflation will reach 2% by April. The BOJ however has stated it won’t respond to costs-push inflation through policy tightening.