* Manuf sentiment DI +6, non-manuf +7 -Reuters Tankan
* Exports -3.3 pct yr/yr versus forecast -2.4 pct yr/yr
* Strong yen, slowdown in overseas economies clouds outlook
* Japan FX intervention still on cards as yen gains persist
* About 30 pct see power shortages pushing production abroad
(Adds separate poll)
By Rie Ishiguro and Tetsushi Kajimoto
TOKYO, Aug 18 Japan's business mood improved in
August and is expected to brighten further as manufacturers
restore output to pre-disaster levels, a Reuters poll showed,
but a rising yen and slackening foreign demand have started
taking their toll on exports.
Companies in the Reuters Tankan survey expressed growing
concern about the currency's rise while trade data also
published on Thursday showed recovery in exports slowed markedly
last month when the yen soared against a weakening dollar.
Slowing exports pose a risk to the world's third-largest
economy, which is about to pull out of a recession triggered by
a massive earthquake and tsunami in March that caused the
world's worst nuclear power crisis in 25 years, since Chernobyl.
Exports inched up from June but were down more than expected
in comparison with July 2010. Shipments to China and the United
States -- Japan's key markets -- both fell.
Domestic demand, driven by companies retooling and boosting
output, is bolstering business sentiment and the economy is
expected to bounce strongly in the present
However, the strong yen, uncertainty about global growth and
the timing of government-funded rebuilding efforts are clouding
"Reconstruction demand has kicked in at sectors such as
construction, utilities and fisheries thanks largely to
private-sector investments," said Minoru Masujima, director for
the Cabinet Office's department of business statistics.
"Everyone has been expecting 'reconstruction demand' to
boost the economy from July-September, but such a scenario is
far from certain as it is unclear when the government can
implement a third extra budget to fund fully-fledged
The government plans to spend 13 trillion yen ($169.8
billion)to rebuild coastal areas ravaged by the tsunami in
addition to 6 trillion yen already earmarked for post-disaster
relief and clean-up.
But it is not clear when the next emergency budget will be
passed and the money will start flowing, given that the
unpopular Prime Minister Naoto Kan is on his way out and it may
take weeks before a new cabinet is formed.
Some companies have already benefited from private
sector-driven demand, the Reuters poll showed, but a delay in
government's spending could threaten a V-shaped recovery
expected in the next two quarters.
Construction machinery maker Komatsu Ltd has
reported a 24 percent rise in operating profits in April-June
from a year earlier due in part to demand related to rebuilding
factories and facilities damaged by the March disaster.
MANUFACTURING MOOD LAGS SERVICE SECTORS
Exports fell 3.3 percent in July from a year earlier against
an 2.4 percent annual decline expected by economists, as
shipments to the U.S. and China fell 8.2 percent and 1.0 percent
Compared to the previous month, exports rose 0.8 percent,
slower than a 5.4 percent rise in June, Ministry of Finance data
The Reuters Tankan survey showed the manufacturing index,
derived by subtracting the percentage of pessimistic responses
from optimistic ones, rose five points from July to plus 6,
still well below plus 15 seen just before the March disaster.
The index for non-manufacturers rose four points from July
to plus 7, its highest level since December 2007 and exceeding
the manufacturing index for the second straight month.
"That clearly reflects the impact of heightened global
uncertainty due to the downgrading of the U.S. (credit rating)
and the persistent sovereign debt woes in Europe," said George
Worthington, chief economist at IFR Markets.
"For the moment, domestic-oriented companies appear to be
more positive than export-oriented, though domestic demand
conditions remain generally sluggish."
The yen , which gained about 5 percent against the
dollar since early July, did not budge after the data, hovering
just below the record high of 76.25 to the dollar and prompting
a customary warning from Finance Minister Yoshihiko Noda that he
is keeping a close watch on market movements.
Tokyo intervened on Aug. 4 by selling a record of about 4.5
trillion yen in the currency market, but the yen quickly climbed
back against the weakening dollar to pre-intervention levels.
A separate Reuters survey showed 29 percent of
respondents among manufacturers saw the suspension of atomic
power plants as a potential factor to shift production overseas,
up from 25 percent in July, highlighting worries about the
hollowing out of industries amid power shortages and yen's
The March 11 earthquake and tsunami triggered meltdowns
and radiation leaks at a nuclear power plant in
Fukushima , shattering public
confidence in nuclear power.
Th is has darkened the outlook for
the restart of off-line reactors and raised the possibility that
all of Japan's 54 reactors could be shut down by May 2012.
($1 = 76.565 Japanese Yen)
(Additional reporting by Yoko Kubota and Stanley White; Editing
by Tomasz Janowski and Richard Borsuk)