UPDATE 2-Japan business pessimism spreads - Reuters Tankan
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TOKYO, June 19 (Reuters) - Confidence among Japanese manufacturers remained stuck at a five-year low in June and non-manufacturers turned pessimistic, a Reuters survey showed, signalling that gloom was spreading across the economy.
Sentiment in the service sector turned negative for the first time in more than four years, the Reuters Tankan showed on Thursday, reflecting weak domestic demand and suggesting a poor result in the Bank of Japan's closely watched tankan corporate sentiment survey due next month.
"Confidence is low among both manufacturers and non-manufacturers, so it shows the economy is declining more widely," said Yoshikiyo Shimamine, chief economist at Dai-ichi Life Research Institute.
"I think the BOJ's tankan will also produce pretty bad numbers. It will show that the economy is definitely entering a downturn."
The Reuters Tankan, a monthly survey of leading Japanese firms that tracks the BOJ's quarterly tankan, found that Japanese companies expect their business conditions to improve slightly in the coming three months, however.
The survey produced an index of minus 2 for manufacturers in June, unchanged from the five-year low marked in May. [ID:nT77785]
For a graphic of the data click: here
In the survey, conducted from May 27 to June 16, the index for non-manufacturers' sentiment fell 2 points from May to minus 2, the lowest since minus 11 marked in December 2003.
Compared with three months ago, the index was down 10 points for manufacturers and 4 points for non-manufacturers.
The weak readings mean the BOJ tankan due out on July 1 will likely show a worsening of business sentiment from three months before, heightening views that the central bank will keep interest rates on hold at 0.5 percent this year.
Swap contracts on the overnight call rate show investors now see slightly less than a 50 percent chance of a rate hike to 0.75 percent by year-end JPONIBOJ=TRDT. Last week, markets were fully pricing in a rate rise this year.
The Reuters Tankan index is derived by subtracting the percentage of respondents who say business conditions are poor from that who say they are good. A result below zero means more of those surveyed are pessimistic about conditions.
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