Japan business mood seen up, bodes well for sales tax hike

TOKYO Wed Sep 25, 2013 11:03pm EDT

A woman walks out of a drugstore in Tokyo April 25, 2013. REUTERS/Toru Hanai

A woman walks out of a drugstore in Tokyo April 25, 2013.

Credit: Reuters/Toru Hanai

TOKYO (Reuters) - Japanese big manufacturers' mood improved in the three months to September for a third straight quarter, the Bank of Japan's key survey is likely to show next week, underlining an economic recovery backed by firm private spending and pickup in exports.

The central bank's quarterly tankan survey will likely show the headline index for big manufacturers' sentiment improved three points from the previous quarter to plus 7, according to a Reuters poll of 22 economists.

That would be a second straight quarter with a positive reading, which means optimists outnumbered pessimists, cementing the case for Prime Minister Shinzo Abe to decide in early October on a planned sales tax hike from next April.

Abe - whose reflationary policies have boosted share prices, weakened the yen and bolstered sentiment in the world's third-largest economy - is expected to make the decision after confirming readings in the BOJ tankan due 8:50 a.m. Tuesday (7.50 p.m. EDT Monday).

The premier has already ordered his government to compile by the end of this month a stimulus package that sources said was likely to total around 5 trillion yen ($50 billion) to cushion the blow from the planned tax hike on the economy.

"Exports are picking up with the U.S. economy performing well and Europe bottoming out while the dollar remains just below 100 yen. Domestic consumption remains steady as well with an increase in public works and housing demand," analysts at NLI Research Institute note in the Reuters poll.

"We're expecting bullish tankan readings overall. There won't be any reason for withdrawing the planned sales tax hike."

Service-sector mood also likely improved on the back of firm private spending driven in part by buying rush ahead of the planned sales tax hike, with the big non-manufacturers' index seen up two points to plus 14, the Reuters poll showed.

Big firms are seen raising capital spending by 6.0 percent in the fiscal year to next March, up from 5.5 percent in the previous tankan, the Reuters poll showed, a sign the positive mood may be encouraging firms to spend more, albeit slowly.

Big manufacturers and non-manufacturers both expect business conditions to improve further three months ahead, although the pace of improvement is seen slowing from the April-June quarter.

Gains in the sentiment indexes at small firms are likely to be marginal, with readings for both manufacturers and non-manufacturers remaining negative, the Reuters poll showed.

Upbeat tankan readings will be encourage the BOJ which is keen to end 15 years of deflation and meet its 2 percent inflation target in roughly two years through massive monetary stimulus.

The BOJ's previous tankan in July showed big manufacturers' mood turned positive in April-June for the first time in nearly two years, and was seen rising further. The tankan's sentiment indexes are derived by subtracting the percentage of respondents who say conditions are poor from those who say they are good.

The BOJ upgraded its assessment of the economy earlier this month to say it was recovering moderately, and the tankan report, a key touchstone for BOJ policymakers, will likely confirm the view that the economy remains on a recovery track.

($1 = 98.6900 Japanese yen)

(Reporting by Tetsushi Kajimoto; Editing by Eric Meijer)