By Tetsushi Kajimoto and Izumi Nakagawa
TOKYO (Reuters) – Japanese manufacturers’ business confidence slipped to a 2-1/2-year low in April, a Reuters poll showed on Thursday, underlining growing concerns the economy could slip into a recession in the face of slowing external demand.
The monthly poll, which tracks the Bank of Japan’s (BOJ) closely watched tankan quarterly survey, found the service-sector mood up for the first time in four months, which may help ease some of the pressure on the world’s third-biggest economy.
Manufacturers’ mood is expected to rebound over the coming three months and service-sector morale is also seen edging up slightly, although the pace of recovery appears weak.
Subdued business confidence – on top of weakness in factory output and exports – has raised the spectre of a downturn, although BOJ Governor Haruhiko Kuroda has maintained a relatively sanguine view on the economy in a signal that policy will remain steady at next week’s rate-review.
In the Reuters poll of 478 large- and mid-sized companies, in which 241 firms responded on condition of anonymity, many managers voiced concerns about China’s economic slowdown and its trade war with the United States.
“A sense of caution is rising due to the global slowdown amid the U.S.-China trade war and Brexit, which are causing companies to hold off on business investment, curbing orders for capex,” a manager of a machinery maker wrote in the survey.
The Reuters Tankan sentiment index for manufacturers stood at 8 in April, down two points from March, weighed on by manufacturers of processed food, transport equipment machinery and chemicals, the April 3-15 survey showed.
The index posted a sixth straight month of falls and hit the lowest reading since September 2016.
It is expected to rebound to 13 in July.
A bruising Sino-U.S. tariff war and slowing global growth have curbed global trade, in turn hurting Japan’s exporters and manufacturing industry. Some analysts warn of the risk of the economy sliding into a recession.
In the fourth quarter, Japan’s economy managed a modest bounce after a contraction in the previous quarter as floods and an earthquake temporarily halted production. The worry is that the recovery is being stunted by a cooling global economy.
The service-sector index grew to 24 in April from 22 in the previous month, led by industries such as construction/real estate and transport/utility.
The index is expected to inch up to 25 in July.
The BOJ’s last quarterly tankan showed the business mood hit a two-year low in the March quarter, highlighting worries that global trade tensions and weakening world demand were taking a toll on the export-reliant Japanese economy.
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 and Izumi Nakagawa; Editing by Shri Navaratnam)