Japan may be emerging from recession after rebound in confidence among manufacturers

Factories at an industrial zone are seen from Haneda airport in Tokyo.
Factories at an industrial zone are seen from Haneda airport in Tokyo.PHOTO: REUTERS

TOKYO (REUTERS) - Confidence among Japanese manufacturers bounced in December for the first time in four months and it is seen inching up ahead, a Reuters poll found, suggesting the economy is slowly emerging from a recession.

In a sign of still-sluggish domestic demand, however, the service sector's mood slipped to the lowest level in a year as retailers were hit by weakness in private consumption, which accounts for about 60 per cent of the economy.

The monthly Reuters Tankan, which closely tracks the Bank of Japan's tankan quarterly survey, showed sentiment for both manufacturers and the service sector is seen to be largely unchanged over the next three months.

The poll of 514 big and mid-sized firms between Nov 20 and Dec 2 suggested that the central bank's key tankan readings due next week may show business mood struggled to improve in the current quarter. A total 259 firms responded in the latest poll.

"Domestic orders are in a moderate recovery trend but sales and profits take time to recover due to the decline in orders from emerging Asian countries," a manager at a machinery maker said in the survey, which companies answer anonymously.

"The drop in transaction volume and sales will persist for the time being given poor business conditions, reflecting China's slowdown, yen weakness and slumping private consumption, which hurt local regions," said a transport service firm.

The Reuters Tankan sentiment index for manufacturers rose to nine in December from three in November, the first improvement in four months, led by both materials and processing industries. The index is seen at 10 in March.

Compared with three months ago, the manufacturers' index held steady, suggesting that the BOJ's upcoming quarterly tankan may show little improvement in the big manufacturers' sentiment.

The service sector index fell to 18 from 22 in November, the lowest since November 2014, weighed on by retailers. The index is seen unchanged in March.

Compared with September, the service-sector index was down five points, suggesting that the BOJ tankan may show worsening in non-manufacturers' sentiment.

The last BOJ tankan issued on Oct 1 showed big manufacturers' morale fell in the three months to September but the service sector's mood rose to a more than a two-decade high.

The BOJ tankan is one of the major indicators the central bank scrutinises in guiding monetary policy. The bank holds the next policy-setting meeting later next week.