Japan business mood signals pick-up in private consumption: Reuters Tankan

A man walking outside a discount store, at a business district in Tokyo, Japan on May 25, 2015.
A man walking outside a discount store, at a business district in Tokyo, Japan on May 25, 2015.PHOTO: REUTERS

TOKYO (REUTERS) - Confidence at Japanese manufacturers in June rose for the second straight month and retailers were at their most optimistic in over a year, a Reuters poll showed, offering a welcome sign that consumers may have finally shaken off the effects of a sales tax hike.

The Reuters Tankan - which closely tracks the central bank's quarterly tankan survey - gives credence to the Bank of Japan's view that the economic recovery will strengthen over the next year although analysts doubt its 2 per cent inflation target is achievable in fiscal 2016.

The upbeat mood follows recent data that showed the world's third-biggest economy grew at a much stronger-than-expected pace in the first quarter, led by businesses ploughing more capital investment.

While exports growth have lagged expectations, and the economy is seen slowing in the current quarter, any uptick in private consumption should support the BOJ's argument for no near-term stimulus. A Reuters poll predicted further monetary expansion in October.

The monthly poll of 481 big and midsize companies between June 2 and 15, of which 263 responded, showed manufacturers'mood is seen improving further while service-sector morale is seen unchanged after rising for a third straight month in June.

In a sign of a brightening outlook for private consumption, which makes up about 60 per cent of the economy, retailers' mood jumped to the highest since March last year, when consumers went on a buying spree before the sales tax rose the following month.

"Sales are on a recovery trend as they are rebounding from the sales tax hike," said one retailer. "On the other hand, rising raw materials costs are squeezing our gross profits."

The Reuters Tankan sentiment index for manufacturers rose to 14 in June from 13 in May, led by gains in precision machinery makers and chemicals producers. The index is expected to improve further to 19 in September.

Compared with three months ago, the manufacturers' index fell by two points, suggesting that the BOJ's next quarterly tankan may show little improvement among big manufacturers.

The service-sector index rose to a record high of 36 from 33 in May, led by retailers and information/communications firms.

The service-sector index is seen unchanged in September.

The index stood 15 points higher than in March, pointing to a marked improvement in the upcoming BOJ tankan, compared to the largely subdued readings in the last central bank survey.

The Reuters Tankan indexes are calculated by subtracting the percentage of pessimistic respondents from optimistic ones. A negative figure means pessimists outnumber optimists.