Japanese shares plunged more than 3 per cent Friday for the fourth straight day of decline as market sentiment was undermined by disappointing indications from the business sector.

The benchmark Nikkei 225 Stock Average lost 594.51 points, or 3.55 per cent, to end at 16,164.16 while the broader Topix index was down 45.8 points, or 3.4 per cent, at 1,301.4.

Japanese companies were losing confidence amid slumping domestic spending and slow growth in emerging economies, according to a central bank survey released Friday.

The Bank of Japan's closely watched Tankan index fell by 6 points since December to plus 6, but remained in positive territory indicating that optimists outnumber pessimists.

It is the first time the index in the quarterly survey has fallen to below 10 since June 2013, adding to doubts over the health of the world's third-largest economy.

Large manufacturers expect the index to fall to plus 3 in the next quarter, the survey showed.

The index for large non-manufacturers also declined to plus 22 from plus 25.

Large corporations in the manufacturing and non-manufacturing sectors expected their capital investment to fall 0.9 per cent for the current financial year through March 2017 from the previous year.

The weak investment forecast was bad news for Prime Minister Shinzo Abe’s government. The premier sees strong corporate investment as key to propping up the economy.

The Japanese economy shrank at an annualized rate of 1.1 per cent in the October-to-December quarter for the second contraction in three quarters.

The Tankan survey showed business sentiment among medium-sized manufacturers was unchanged at plus 5 while the index for small manufacturers dropped to minus 4 from zero.

Japanese exporters are concerned about the continuing strong yen and slow growth in emerging economies such as China, Japan's largest trading partner.

The yen has climbed nearly 7 per cent against the dollar since the start of this year. A stronger yen makes Japanese goods less competitive overseas and erodes repatriated earnings.

With the upper house elections just a few months away, the weak survey results could lead Abe to postpone a sales tax hike scheduled for April 2017, analysts said.

Chief Cabinet Secretary Yoshihide Suga told a news conference, "We'd like to monitor situations at home and abroad and make utmost efforts to promote an economy led by private demand.”

The central bank surveyed about 10,000 companies from February 25 to March 31 for the survey.

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