Japan business mood up, outlook clouded by tax hike - Reuters Tankan
By Tetsushi Kajimoto
TOKYO (Reuters) - Confidence at Japanese manufacturers grew in April for the first time in three months, and a more moderate dip is seen over the next three months, Reuters poll showed, suggesting the impact on economic growth from a sales tax hike may be less pronounced than earlier thought.
The monthly Reuters Tankan, which closely correlates with the Bank of Japan's tankan survey, gives an early glimpse of business morale after the tax rate rose to 8 percent from 5 percent on April 1. It also showed service-sector sentiment hit a record high.
The reading could support a dominant view among policymakers and private-sector analysts that the world's third-largest economy can weather the pain from the tax hike although both manufacturers' and service-sector mood is seen sliding in July.
Importantly, compared with the previous polls, companies appear slightly less concerned about the sting from the tax-hike, citing relatively firm domestic demand and effects of increased public works spending.
"Orders we receive and sales grew in the March quarter, probably due to the last-minute demand. We need to wait and see how they fare in April-June before determining whether the trend is looking up," an electric machinery firm said in the survey.
"We guess our business is looking up as a trend because orders unrelated to the last-minute demand are also rising."
A total of 253 firms responded to the poll of 400 big and medium-sized firms taken April 2-14. Indexes are calculated by subtracting the percentage of pessimistic responses from optimistic ones.
FRESH STIMULUS EYED
The poll comes as a recent slew of soft data kept alive market expectations for fresh stimulus by the BOJ in the summer, even though the central bank has repeatedly dismissed the need for more near-term action, arguing that the economy is on track to meet its inflation goal.
Governor Haruhiko Kuroda reiterated on Wednesday that the economy will resume growth above its potential after weakening in the April-June quarter, while Finance Minister Taro Aso saw pullback in demand after April 1 was smaller than expected.
Still, the uncertain outlook is keeping firms cautious as they already face a margin-squeeze from high import costs of fuel and raw materials due to a weak yen.
While the weak yen generally helps exports, companies voiced concern about lacklustre demand from China and elsewhere in Asia, and a fallout from the Ukraine crisis on external demand.
"The last-minute demand before the sales tax hike has slowed since March and we are concerned that a slump in private consumption may drag down business conditions from now on," a transportation firm said in the Reuters Tankan poll for April.
"The U.S. economy is becoming relatively steady, but that has not led to a recovery in real demand as the Chinese economy remains sluggish and tension in the situation surrounding Russia (and Ukraine) is a concern that could hurt business sentiment."
MILDER PULLBACK?
In the Reuters Tankan poll for April, the index of sentiment among manufacturers rose 7 points to plus 25, the highest reading since August 2007, a year before the Lehman shock triggered the global financial crisis. At plus 35, the service-sector gauge was up 4 points from the previous month.
The indexes for manufacturers and non-manufacturers are expected to weaken to plus 17 and plus 21 respectively in July, reflecting the likely impact of the tax hike.
But the decline in the outlook sentiment indexes is less pronounced than in the previous survey. In March the sentiment index at manufacturers was seen falling 6 points to plus 12 by June, and the index among service-sector firms was expected to drop 17 points to plus 14.
Among manufacturers, only textiles/paper and autos/transport equipment industries are expected to turn pessimistic about business conditions over the next three months. Their indexes are seen falling 22 points and 8 points each to minus 33 and minus 8 respectively in July.
In the service sector, retailers and transport/utility industries are turning pessimistic, with their indexes seen falling 25 points and 10 points respectively to minus 5 in July.
The BOJ's tankan showed this month business mood improved a tad in the March quarter, but both big manufacturers and non-manufacturers expected conditions to worsen in June as they brace for a dent in consumer spending after the sales tax hike.
Analysts expect the economy to contract in April-June due to the expected chill in consumption, before returning to moderate growth in the following quarters.
(Editing by Shri Navaratnam)
