By Tetsushi Kajimoto
TOKYO - Japanese manufacturers' business outlook was less pessimistic in October while service-sector sentiment rose to a three-month high, the Reuters Tankan poll found, likely easing fears for now of the world's third-largest economy falling into a recession.
The results could bolster the government's expectations that solid domestic demand will help counter the drag from exports, as the Sino-U.S. trade war and global slowdown weigh on the country's economic growth. That offers relief to policymakers who are under pressure to deploy further stimulus to prevent the trade-dependent economy from falling into a recession.
Prime Minister Shinzo Abe has vowed to take "all possible steps" if risks to the economy mount, echoing a pledge made by the central bank and signaling the prospect of fiscal stimulus in case this month's sales tax increase triggers a sharp economic downturn.
Underlining the rocky road ahead, the monthly poll, which tracks the Bank of Japan's (BOJ) closely-watched tankan quarterly survey, foresees manufacturers' mood slipping over the coming three months and service-sector morale sliding.
In the Reuters poll of 504 large- and mid-sized companies, in which 248 firms responded on condition of anonymity, manufacturers voiced worry about the protracted trade war and slowdown in China's economy -- Japan's largest trading partner.
Still, some Japanese firms do not see the impact of the global slowdown immediately hurting the export-reliant economy.
A manager of an electrical machinery maker said business conditions had turned out to be "unexpectedly" good, although the domestic economy was likely to worsen due to slowdown in China, Asia and the United States from the trade war.
"Demand for capital expenditure at manufacturers has proven surprisingly resilient, and it looks to be avoiding the kind of slump we had expected," the manager wrote in the survey.
The sentiment index for manufacturers stood at minus 5, up two points from the prior month's 6-1/2-year low of minus 7, according to the survey conducted Sept. 26 to Oct. 7.
The index is expected to swing to minus 6 in January.
The service-sector index climbed to plus 25, up from plus 19 in the previous month, led by retailers who have likely benefited from consumers rushing to beat the Oct. 1 sales tax which went up to 10% from 8%.
Still, retailers' sentiment index was seen falling to zero in January, after surging 20 points to plus 30 in October. The sharp retreat highlights concerns over the effects of the tax hike on private consumption, which accounts for around 60% of the economy.
The overall service-sector index is expected to fall to plus 15 in January.
The BOJ's last tankan in early October showed that big manufacturers' business confidence worsened to a six-year low in the July-September quarter, a sign the year-long U.S.-China trade war was taking a heavier toll on the Japanese economy.
The Reuters Tankan indexes are calculated by subtracting the percentage of pessimistic respondents from optimistic ones. A negative figure means pessimists outnumber optimists.