Japan business mood backs gradual economic recovery: Reuters Tankan survey

TOKYO (Reuters) - Japanese manufacturers' sentiment improved and the service-sector's mood rose to its highest level in a year, a Reuters poll showed on Friday, offering further evidence of the economy's gradual recovery from last year's recession.

The Reuters Tankan, which closely tracks the Bank of Japan's quarterly tankan survey, came two days after data showed a second straight quarter of gradual economic expansion in January to March, helped by pickup in business expenditures.

Improving business sentiment could support a more upbeat economic outlook from the Bank of Japan, which is widely expected to keep its massive asset purchase programme steady at its policy review that ends later on Friday.

The monthly poll of 481 big and midsize companies between May 7 and 19, of which 248 responded, showed manufacturers' mood is seen edging up further while sentiment at service businesses is expected to slip after rising for a second straight month in May.

In a positive sign for private consumption, which accounts for roughly 60 per cent of the economy, retailers' mood turned positive and hit the highest level since June last year, when an earlier sales tax hike dealt a blow to consumers. "Sales seem to be rebounding from a slump caused by the sales tax hike last year, although rising costs due to a weak yen weigh on profits," said one retailer in the Reuters poll.

Another retailer said: "Sales are performing well when looking at year-on-year, but they have not recovered to levels seen in 2013." The managers responded anonymously to the Reuters Tankan.

The Reuters Tankan sentiment index for manufacturers rose to 13 in May from 12 in the prior month, led by gains in sectors such as food processing firms and steel/nonferrous metal makers. The index is expected to improve further to 15 in August.

The service-sector index rose to 33 from 25 in April, reaching the highest level since April last year when the sales tax rise to 8 percent from 5 percent hit consumers. Sectors including wholesalers and retailers led the gain.

The service-sector index is seen falling to 29 in August.

The BOJ's tankan showed on April 1 that big manufacturers were no more confident than they were three months ago, and sentiment inched up among service-sector firms.

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

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