* Manufacturers' Jan sentiment index +19, service sector +27
* Index seen down in April, a sign of wariness on sales tax
* Reuters poll strongly correlates with BOJ key tankan survey
By Tetsushi Kajimoto and Izumi Nakagawa
TOKYO, Jan 23 Japanese business sentiment improved for a third straight month in January but it is expected to slide after a sales tax hike in April, a Reuters poll showed, reflecting worries about the tax's impact on private consumption.
The monthly poll, which is strongly correlated with the Bank of Japan's tankan survey, provided further evidence of the ongoing recovery in the world's third largest economy on the back of firm domestic demand.
But the poll of 400 big and midsize firms - of which 271 responded during the Jan. 6-20 period - underlined concerns that the economy may slump, albeit temporarily, when the consumer buying rush to beat the sales tax hike has run its course.
Japan's 5 percent sales tax will be raised to 8 percent in April. The government then aims to increase the levy to 10 percent in October 2015 to cover bulging welfare spending in this rapidly-ageing society and to repair dire public finances.
"In the past year our sales have been increasing over the previous year, but we are concerned about reaction after a jump in demand before the tax hike," one retailer said in the poll.
A transport equipment firm said: "The outlook for our business is murky due to the sales tax increase."
The index of sentiment among manufacturers, derived by subtracting the percentage of pessimistic responses from optimistic ones, rose by two points to plus 19 in January, matching a previous high seen in October 2010.
The reading means that optimists far outnumber pessimists, although it remains short of the levels seen before the 2008/09 global financial crisis.
The service-sector firms' index edged up by two points to plus 27, matching a record high seen in August 2004, when Japan was experiencing its longest postwar economic expansion aided by a weak yen and good global growth.
The sentiment indexes for manufacturers and service-sector firms are seen sliding to plus 14 and plus 23 respectively in April, pointing to slowdown in the economy.
Retail's sentiment index is seen worsening sharply from plus 9 to minus 4 in April, boding ill for private consumption, which accounts for about 60 percent of the economy.
Industries such as oil refiners and wholesalers expect their situation to improve in April, while carmakers see conditions remaining steady, a mark of how the weak yen underpins their businesses.
The poll showed a weak yen helps exporters of cars and electronics, but some firms struggle with the higher import costs of fuel and raw materials which they are unable to pass on through price increases - squeezing profits.
The yen has fallen about 17 percent from a year ago, driven by central bank quantitative easing aimed at ending 15 years of deflation and reviving the economy.
The BOJ's last tankan showed Japanese business confidence hit a six-year high in the three months to December - a sign of a broadening economic recovery.
The BOJ left monetary policy steady on Wednesday and stuck to its upbeat inflation forecasts, suggesting that no imminent monetary easing is on the horizon.