November 14, 2013 / 1:36 AM / 4 years ago

Japan business mood improves, seen rising further: Reuters Tankan

Cars covered with snow are seen at an industrial port before they are loaded to a cargo ship in Yokohama, south of Tokyo February 29, 2012.Kim Kyung-Hoon

TOKYO (Reuters) - Confidence among Japanese firms rose for the first time in three months in November and is seen improving further over the next three months, a Reuters poll showed on Thursday.

The index of sentiment among manufacturers, derived by subtracting the percentage of pessimistic responses from optimistic ones, rose by two points to plus 14 in November, near a three-year high hit in August, underlining a steady recovery in the world's third largest economy.

The Reuters survey, which is strongly correlated with the Bank of Japan's key "tankan" corporate survey, shows the index is expected to rise again to plus 16 in February.

The latest reading augured well for the Bank of Japan's next quarterly tankan due December 16, with policymakers expecting the economy to continue a moderate recovery.

Still, the improvement in confidence was somewhat patchy, with sentiment improving at four of the nine manufacturing industries including steel and precision machinery, while four others including autos and food saw their sentiment weaken. The mood among textiles/paper firms remained flat.

"High share prices and the correction of a strong yen have not led to capital spending at manufacturers, who are our key customers," one maker of electrical machinery said.

"Manufacturers hold a cautious view as to whether the current solid momentum will continue and they seem to refrain from capital spending at home as they remain unconvinced that it will lead to an increase in sales."

The poll covers 400 big and midsize firms, of which 260 responded during the October 25-November 11 period.

Some firms complained about weak global demand, including from China and Europe, while others struggled with the weak yen increasing the prices of imported materials.

LAST-MINUTE SPENDING

In the Reuters Tankan survey, the service sector gauge also rose 4 points in November from the previous month to plus 22, edging closer to a six-year high logged in August. The index is expected to improve further to plus 28 in February.

Retailers and real estate/construction firms led the gains, a sign they are benefiting from increased spending by consumers ahead of a sales tax hike next April. Only the information/communications firms suffered a drop in sentiment.

"Demand related to rebuilding from the 2011 earthquake is continuing while there's a last-minute rise in demand before the sales tax hike," one construction firm said in the survey.

Japan's growth has outpaced its Group of 7 rich-country peers so far this year led by solid domestic consumption, with recent data pointing to a delayed recovery in capital spending, which has been seen as a weak spot in the economy.

The BOJ's tankan on October 1 showed the big manufacturers' sentiment index jumped in July-September to a nearly six-year high, with large companies planning to raise capital spending by 5.1 percent in the current business year to next March.

The central bank revised up its economic projections last month and maintained its view that Japan was on track to achieve 2 percent inflation in two years, in spite of some dissent among the nine board members on the inflation outlook.

Reporting by Tetsushi Kajimoto; Editing by Eric Meijer

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