Japan manufacturers remain gloomy: Reuters Tankan

TOKYO (Reuters) - Japanese manufacturers remained in a pessimistic mood in January as Sino-U.S. trade frictions and sluggish global demand weighed on the export-reliant economy, the Reuters Tankan survey showed.

FILE PHOTO: A man cycles past chimneys of facotries at the Keihin Industrial Zone in Kawasaki, Japan September 12, 2018. REUTERS/Kim Kyung-Hoon

But some believed conditions would improve in the next few months, according to the monthly poll, which tracks the Bank of Japan’s (BOJ) closely watched tankan quarterly survey.

Service sector firms, meanwhile, were expected to remain largely upbeat.

The survey came as the World Bank cut its global growth forecasts slightly for 2019 and 2020 due to a slower-than-expected recovery in trade and investment.

In the poll of 502 large- and mid-sized companies, in which 260 firms responded on condition of anonymity, many complained about weak global demand for cars and other goods as well as the hit from Japan’s Oct. 1 sales tax hike on consumer sentiment and spending.

“Customers are taking a wait-to-see stance due to effects of the U.S.-China trade war, which has led to inventory adjustments and curbed demand,” a paper/pulp maker wrote in the survey.

A chemicals maker wrote: “Car markets are cooling globally with the major Chinese market particularly being weak.”

The Reuters Tankan index readings are derived by subtracting the percentage of respondents who say conditions are poor from those who say they are good. A negative reading means that pessimists outnumber optimists.

The sentiment index for manufacturers stood at minus 6, unchanged from the previous month, according to the survey conducted Dec. 25-Jan. 10. But it was seen rising to zero in April.

The service-sector index was also unchanged, at plus 14, and was seen slipping one point to plus 13 in April.

The BOJ’s tankan showed last month that big manufacturers’ mood hit a near seven-year low in October-December as the trade war between the world’s two largest economies dragged on.

But business sentiment globally has picked up after Washington and Beijing agreed on a Phase 1 trade deal in mid-December. The agreement, to be signed on Jan. 15, will de-escalate but not end the trade war.

Japan’s economy grew at an annualized clip of 1.8% in July-September as brisk business expenditures offset weak external demand, although economists expect the world’s third-largest economy to slump in the last quarter as the Oct. 1 sales tax hike bites.

The BOJ is likely to revise up slightly its economic forecast for the fiscal year starting in April to reflect an expected boost from the government’s latest spending package, sources familiar with its thinking said.

Any upward revision will allow the central bank to justify keeping monetary policy steady at the Jan. 20-21 rate review.

Reporting by Tetsushi Kajimoto; Editing by Kim Coghill