BOJ tankan to show business mood up but outlook dims

Mon Mar 24, 2014 6:20am EDT
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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.   Continued...

A security guard salutes at the entrance of the Bank of Japan building in Tokyo January 22, 2014. REUTERS/Yuya Shino