* Manufacturers sentiment index -13, non-manufacturers +8
* Firms' mood expected to improve further due to soft yen
* Reuters Tankan highly correlated with BOJ tankan
By Kaori Kaneko and Izumi Nakagawa
TOKYO, Feb 21 Japanese manufacturers' sentiment picked up for the third straight month in February and looks set to turn positive in the next few months, a Reuters poll showed, showing a gradual recovery from a slump with help from a weak yen.
Firms remained cautious about a patchy recovery in the business environment in February but indicated they are expecting broad improvement in coming months, although a full-fledged economic recovery may take time.
The poll of 400 firms, of which 257 responded during Feb. 1-18, comes as new Prime Minister Shinzo Abe continues to aggressively push monetary and fiscal policies which have helped to sharply weaken the yen and boost share prices to 52-month highs.
The Reuters Tankan, which closely correlates with the Bank of Japan's key quarterly tankan survey, showed that optimism among non-manufacturers, including retailers and construction firms, eased slightly this month but looked set to firmly rebound in May.
"Progress in the yen's weakness helped our recurring profits but a recovery in the core business is limited," one metal products/machinery firm said.
"Government economic policies have not led to an increase in domestic capital spending. But there is a high chance that capex will become active on a soft yen and Japan's strengthening competitiveness," an electric machinery company said.
THINGS ARE LOOKING UP
In the Reuters Tankan, the manufacturers' sentiment index rose by 4 points to minus 13 in February, further recovering from the lowest level in three years logged in November, when sentiment was weighed down by the global economic slowdown and tensions with China over territorial disputes.
The index, derived by subtracting the percentage of pessimistic responses from optimistic ones, is expected to rebound to plus 3 in May, meaning that optimists will outnumber pessimists for the first time since last May.
The jump was led by improvement in business sectors including oil refiners, metal products and precision machinery makers.
The index for non-manufacturers edged down by 2 points to plus 8 and is expected to recover further to plus 21 in May, led by sectors such as wholesalers, real estate/construction firms and information services. Rebuilding demand following the massive March 2011 earthquake and tsunami has supported the construction-related industry.
The BOJ in January doubled its inflation target to 2 percent and made an open-ended pledge to buy assets from next year in an attempt to pull the country out of deflation.
The central bank kept monetary policy steady this month but many expect the BOJ will gear up its easing stance once a new governor replaces Masaaki Shirakawa, who will step down with two deputies on March 19. Prime Minister Abe plans to consider BOJ candidates after his trip to the United States from Feb. 21 to 24.
The economy unexpectedly shrank for a third straight quarter in October-December but analysts project Japan will achieve moderate growth, helped by an expected recovery in global demand and Abe's expansionary policies.