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article imageBOJ tankan to show business mood up but outlook dims

    Mar 24, 2014 in Business

By Kaori Kaneko

TOKYO (Reuters) - Japanese manufacturers' mood probably improved in the three months to March but it will likely weaken the following quarter due to concerns that a sales tax hike may dent the pace of the economic recovery, a Reuters poll showed.

Big firms are expected to raise their capital spending plans slightly for the new financial year, though uncertainty over the economic outlook will keep them cautious.

The Bank of Japan's tankan quarterly survey is expected to show the headline index for big manufacturers' sentiment improved by two points from three months ago to plus 18, the Reuters poll of 21 economists showed.

That would be the fifth straight quarter of improvement as consumers rush to beat the rise in the sales tax on April 1, and amid Prime Minister Shinzo Abe's efforts to boost the economy with his stimulus monetary policy and big fiscal spending.

Service-sector sentiment is also expected to have improved, with the index for big non-manufacturing companies expected to have risen by four points to plus 24, also the fifth straight quarter of improvement.

But analysts said the nation is not on a self-sustainable recovery and the pace of growth has not gathered momentum.

"Although last-minute demand before the sales tax hike is expected, the areas of benefiting from it don't seem to have widened much," said Hideo Kumano, chief economist at Dai-ichi Life Research Institute said in his report.

The business mood among both big manufacturers and non-manufacturers is expected to weaken over the next three months as they fear the sales tax increase to 8 percent from 5 percent could dampen private consumption.

"Sentiment will likely stay in positive territory and Japan's economy is not seen on the turning point of entering a recession phase," said Yoshimasa Maruyama, chief economist at Itochu Economic Research Institute, said in his report.

The central bank's closely watched tankan survey, due on April 1, will show the first estimate of firms' capital spending plan for fiscal 2014 starting in April.

The poll found big firms will raise their capital spending by 0.2 percent for the year, which compared with a 2.0 percent fall in last year's March survey for their capex spending plan for fiscal 2013.

Economists at Japan Research Institute said in the poll that firms' capital spending plans will likely be supported by the economic recovery, renewals of older facilities and investment related to the Tokyo Olympic Games.

"But both big and small firms' capital spending remains about 70 percent of what was before the Lehman shock and their cautious stance towards capital expenditure persists," they said.

Economic growth slowed in the final quarter last year and financial markets widely expect the BOJ will launch another round of easing this summer as consumer inflation remains far from the central bank's target and the broader outlook weakens.

Last April, the BOJ announced an intense burst of monetary stimulus, pledging to buy assets aggressively to accelerate consumer inflation to 2 percent in about two years.

Its Governor Haruhiko Kuroda has said the nation has been steadily moving towards achieving the price target but he is willing to move when necessary.

The BOJ will hold its next monetary policy meeting on April 7-8.

The world third-largest economy will likely contract temporarily in April-June on a pullback in consumption after the tax hike but is seen returning to moderate growth in following quarters.

(Editing by Kim Coghill)

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