By Tetsushi Kajimoto and Izumi Nakagawa
TOKYO (Reuters) - Confidence among Japanese manufacturers worsened for a second straight month in December and is seen slipping further, a Reuters monthly poll showed on Thursday, pointing to declines in the central bank's upcoming tankan business survey.
The monthly poll, which tracks the Bank of Japan's (BOJ) key tankan quarterly survey, found service-sector sentiment inched up in December but was expected to slip again in the coming three months - a sign business confidence is leveling off.
Confidence at both manufacturers and service businesses was lower compared with three months ago, boding ill for the BOJ tankan survey due out on Dec. 14.
In addition to facing the external threat from a U.S.-China trade war, companies were struggling with labor shortages in an aging population and the difficulty of passing on rising raw materials costs to frugal customers.
"Our clients are turning cautious about capex due to uncertainty over the global economic outlook with the spread of protectionism and U.S.-China trade friction," a manager at a machinery firm wrote in the Reuters survey.
Some 246 firms responded on condition of anonymity in the Reuters poll of 480 large- and mid-sized companies conducted Nov. 20 to Dec. 3.
The sentiment index for manufacturers was at 23, down three points from the previous month, weighed by exporters of cars and precision machinery. The index was also down three points from three months ago, and was expected to fall to 22 in March.
The service-sector index edged up to 31 from 30 in November, led by the information and communications industry. But a big drop among retailers raised worries over private consumption, which accounts for roughly 60 percent of the economy.
Compared with three months ago, the service-sector index was two points lower in December. The index is expected to slip to 30 in March.
The BOJ's last tankan on Oct. 1 showed big manufacturers' sentiment soured in the September quarter to hit its lowest in more than a year as companies struggled with natural disasters that crimped output and physical distribution.
Japan's economy, the world's third-largest, is expected to rebound from the third-quarter contraction, but a recent mixed batch of indicators raised doubts about the strength of recovery.
Optimism that Washington and Beijing would quickly resolve their trade dispute sharply waned this week, days after U.S. President Donald Trump and Chinese President Xi Jinping agreed on Saturday to shelve any new tariffs. [nL1N1Y823J]
The Reuters Tankan indexes are calculated by subtracting the percentage of pessimistic respondents from optimistic ones. A positive figure means optimists outnumber pessimists.