Japan business mood defies economic headwinds, backs BOJ optimism

Thu Jun 19, 2014 1:30am EDT
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By Tetsushi Kajimoto and Leika Kihara

TOKYO/AKITA Japan (Reuters) - Confidence of Japanese manufacturers held steady in June while the service-sector mood rebounded from the prior month, an encouraging sign for the economy as it tries to hold its ground in the face of soft exports and weakening consumption.

The readings in Thursday's Reuters Tankan poll - which strongly correlates with the Bank of Japan's key tankan quarterly survey - reinforce policymakers' confidence that the world's third-largest economy can weather the pain of a recent national sales tax increase.

Still, the BOJ may face renewed pressure for additional stimulus if the weakness in exports persist, threatening to derail a recovery which kicked in last year following near two decades of economic stagnation.

In a speech on Thursday that underscored some of the uncertainties ahead, BOJ board member Yoshihisa Morimoto warned of risks to the export outlook as demand in emerging Asian markets fail to gather momentum.

He said there were "both downside and upside risks" to the BOJ's projection that exports will rebound, depending on how overseas economies perform.

"We must continue to scrutinise the outlook for emerging economies, as well as developments in Europe's debt problem and the U.S. economy," Morimoto told business leaders in Akita, northeastern Japan.

His comments follow data on Wednesday which showed Japan's exports fell for the first time in more than a year, hit by a drop in shipments to Asia and the United States.

Some market players worry that the hit from the April 1 tax increase to 8 percent from 5 percent and weak shipments could prove bigger than expected, squandering the progress made over the last year thanks to Tokyo's massive fiscal and monetary stimulus.   Continued...

A pedestrian holding an umbrella to take shelter from rain and hail walks past the Bank of Japan headquarters building in Tokyo December 20, 2013. REUTERS/Yuya Shino