Japan business mood hits near six-year high, Abe set to raise tax

Tue Oct 1, 2013 2:25am EDT
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By Leika Kihara

TOKYO (Reuters) - Japanese manufacturers' sentiment improved sharply in the three months to September to a near six-year high, a closely-watched central bank survey showed, cementing the case for Premier Shinzo Abe to proceed with a planned sales tax hike next year.

Service-sector sentiment also brightened slightly and big companies plan to increase capital spending, a sign robust personal consumption and a pickup in exports are solidifying a recovery in the world's third-largest economy.

The latest result made it a near certainty Abe will give the go-ahead of the tax hike on Tuesday, and compile a stimulus package to cushion the blow to the economy, analysts said.

"This is very constructive in terms of the assessment of the current economic situation. There is no reason that Abe should stop raising the sales tax," said Masamichi Adachi, senior economist at JPMorgan Securities in Tokyo.

But there were signs the improvement in mood may have peaked partly due to uncertainty on overseas economies, underscoring the challenge policymakers face in sustaining the positive momentum long enough to persuade firms to raise wages.

The headline index for big manufacturers' sentiment rose 8 points to plus 12 in September, much better than a median market forecast for plus 7, the Bank of Japan's "tankan" quarterly survey showed on Tuesday.

It was the third straight quarter of improvement and the highest reading since the survey of December 2007, suggesting that the feel-good mood generated by Abe's reflationary policies is broadening.

The sentiment index for big non-manufacturers also rose 2 points to plus 14 in September with hopes for bigger public works spending lifting morale among construction firms.   Continued...

A man walks on a pathway next to a building in Tokyo's business district September 30, 2013. REUTERS/Yuya Shino