TOKYO (AFP) - Japan announced Monday a sharp drop in business confidence and the first fall in land prices in three years, reflecting a deepening recession in the world's number two economy. Sentiment among top Japanese executives soured to the worst level in at least five years as a collapse in exports battered corporate profits and prompted companies to slash planned investment, the government said. Confidence among large Japanese firms slumped to minus 51.3 points in the first quarter of 2009, down from minus 35.7 three months earlier, hitting the lowest level since comparable records began in early 2004. The index represents the percentage of firms reporting improving business conditions minus that of companies reporting worsening conditions. The grim figures "should hardly come as a surprise," said Jan Lambregts, chief Asia strategist at Rabobank International in Hong Kong. "Japan's economy is in a severe recession, mainly driven by global demand weakness hitting exports. One would fully expect this to show up in horrible business sentiment readings for large manufacturers." The govt also reported that a fledgling recovery in land prices from the 1990s slump had ground to a halt, adding to fears that Asia's biggest economy is heading back into deflation. Residential land prices fell 3.2 percent over the year to January 1 while commercial land value dropped 4.7 percent, the land ministry said. Land prices had begun rising in 2006 for the first time in 16 years as the economy gradually recovered from a slump stretching back more than a decade, but the current recession has caused the recovery to stall. Japan's corporate sector was a key driver of recovery in Asia's largest economy following the 1990s recessions, as companies enjoyed strong profits and invested heavily to expand their production facilities. But the global downturn has caused demand for Japanese goods to dry up, prompting firms such as Toyota and Sony to shed thousands of jobs. Companies expect pre-tax profits to drop 41.2 percent on average in the fiscal year ending this month, and by a further 10.7 percent next year, the survey showed. Firms plan to cut investment in plant and equipment by 10.3 percent this year and by 29.4 percent next year. Japan's economy logged its worst performance in almost 35 years in the last quarter of 2008, contracting at an annualised pace of 12.1 percent. The first quarter of 2009 may turn out to be just as bad and public spending of up to 20 trillion yen (208 billion dollars) may be needed to revive the economy, Finance Minister Kaoru Yosano said Sunday. "Japanese policymakers are scrambling to come up with an adequate response," said Lambregts. "Unfortunately there's no such thing as a silver bullet. Japan's economy continues to rely too much on exports."