December 7, 2020

By Daniel Leussink

TOKYO (Reuters) – Sentiment among Japanese manufacturers and service-sector firms in December improved to its least pessimistic since February, as businesses eyed a slow and bumpy recovery from COVID-19 disruptions, a Reuters poll showed on Tuesday.

Both sectors expect conditions to stay negative into next spring, with respondents’ negative comments about business outnumbering positive ones, according to the monthly Reuters Tankan, which tracks the Bank of Japan’s (BOJ) closely watched tankan quarterly survey.

Manufacturers highlighted worsening conditions in capital spending due to the coronavirus’ hit to demand in the poll of 485 large- and mid-sized companies, in which 245 firms responded on condition of anonymity.

While firms at home remained wary about new investments, inquiries from China were rising, according to a manager at a machinery maker.

“It will take time for those to contribute to our revenue,” the manager said.

The pandemic has worsened conditions in the overseas gaming and domestic amusement park industries, causing capital spending to stagnate, another manager at a precision equipment maker wrote in the survey.

The Tankan result underlines the challenge Prime Minister Yoshihide Suga faces in spurring a more robust recovery of the economy even after a sharp bounce in the third quarter due to rebounds in exports and consumption.

The government is expected to finalise a stimulus package to boost the economy and sustain business activity later on Tuesday. It will also announce revised third-quarter gross domestic product figures.

The Reuters Tankan sentiment index for manufacturers improved to its highest since February in December, rising to minus 9 from minus 13 in the previous month. But the index still stayed in negative territory for a 17th straight month.

The service-sector index showed a more significant improvement, rising to minus 4 from 13 in November, also its highest since February, with sentiment among all sub-sectors coming in better than in the previous month.

The Reuters Tankan index readings are derived by subtracting the percentage of respondents who say conditions are poor from those who say they are good. A negative reading means pessimists outnumber optimists.

The BOJ, which lowered its economic growth and inflation forecasts for the current fiscal year at its last policy meeting, is due to release its own fourth-quarter “tankan” survey results on Dec. 14.

The central bank’s third-quarter survey showed corporate capital expenditure plans by companies of all size and industry for the current fiscal year were at their weakest since the 2009 global financial crisis.

“Demand at home and in Europe is stagnating due to a resurgence of coronavirus infections,” a manager at a paper and pulp maker wrote in the Reuters Tankan survey. “Only China is going well.”

Manufacturers’ business confidence was seen recovering further to minus 5 in March, while that of service-sector firms was forecast to remain unchanged at minus 4.

(Reporting by Daniel Leussink; Editing by Sam Holmes)

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