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Japan business mood improves, signals return to growth - Reuters Tankan

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Japan business mood improves, signals return to growth - Reuters Tankan
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By Tetsushi Kajimoto and Izumi Nakagawa

TOKYO (Reuters) – Confidence among Japanese manufacturers improved in May for the first time in four months while service-sector sentiment hit a record high, the Reuters Tankan poll showed, suggesting the economy may return to growth after a first-quarter slump.

The monthly poll, which tracks the Bank of Japan’s (BOJ) closely watched tankan quarterly survey, also found that manufacturers’ morale was expected to rise further over the coming three months but the service-sector’s mood would slip a little while remaining buoyant.

The poll follows a gross domestic product report out last week showing that the world’s third-largest economy contracted an annualised 0.6 percent in January-March, ending an eight-quarter run of growth as demand weakened.

Analysts expect the economy to return to growth this quarter led by overseas sales, although trade protectionism, rising oil prices and global politics pose risks to the world economy and export-reliant Japan.

In the Reuters poll of 541 big and medium-sized companies, in which 239 firms responded on condition of anonymity, managers expressed concerns over the uncertain global outlook.

“Business confidence in and outside Japan is holding firm and corporate attitudes towards investment are improving,” a manager of a machinery manufacturer wrote in the survey.“That said, some investment seems to be put off due to uncertainty stemming from spreading trade protectionism and heightening geopolitical risks as well as worry about potential yen rises.”

In written comments, many firms also complained about rising oil and raw materials prices as they struggle to pass on higher costs to customers because of tentative consumer spending.

The sentiment index for manufacturers stood at 22 in May, up one point from April, led by automakers and oil refiners, according to the Reuters Tankan conducted May 9-21. The index is expected to rise further to 27 in August.

The service-sector index rose to 39 in May from April’s 36, driven by real estate and construction firms on the back of infrastructure demand from urban redevelopment and the 2020 Tokyo Olympics.

The index is seen slipping back from May’s all-time high of 39 to 36 in August.

The BOJ’s latest tankan showed big manufacturers’ confidence fell last month for the first time in two years as worries about gains in the yen and trade friction with the United States dimmed the outlook.

The Reuters Tankan indexes are calculated by subtracting the percentage of pessimistic respondents from optimistic ones. A positive figure means optimists outnumber pessimists.

(Reporting by Tetsushi Kajimoto; Editing by Eric Meijer)

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