UPDATE 2-Japan manuf mood least bleak in 1-½ yrs -poll

(Click on [ID:nTOE61E038] for table)

* Corporate mood seen improving, bodes well for BOJ tankan

* Emerging economies help lift manufacturers’ confidence

* Service-sector recovery patchy on slack demand, deflation

* Companies face uncertainty, wary of boosting capex

* Only 11 pct would prioritise capex if profits recover
(Adds additional survey results)

By Izumi Nakagawa and Tetsushi Kajimoto

TOKYO, Feb 17 (BestGrowthStock) – Japanese manufacturers are becoming
steadily less pessimistic about economic conditions, with a
Reuters poll issued on Wednesday showing them at their least
gloomy since July 2008 as the economy recovers on the back of
exports, particularly to emerging economies.

The monthly survey likely points to an improvement in the
Bank of Japan’s influential quarterly tankan business sentiment
survey, which next comes out on April 1.

“I think companies are getting optimistic about exports.
While there are some problems in Europe, much of Japan’s exports
now go to Asia, where risks are mostly on the upside,” said
Yoshimasa Maruyama, an economist at Itochu Corp.

Service-sector companies remained more pessimistic than
manufacturers, reflecting tame domestic demand in an economy
mired in deflation. But their sentiment also hit its highest
level since June last year.

The Bank of Japan reviews its monetary policy on Wednesday
and Thursday and is seen likely to keep interest rates at 0.1
percent and hold off on any new initiatives as it expects Japan
to avoid a return to recession despite a likely slowdown early
this year. [ID:nTOE61908Y]

The Reuters Tankan survey of 400 large firms, of which 234
responded, appeared to support that cautiously optimistic view.

The poll, which has a 95 percent correlation with the central
bank’s survey, also showed manufacturers and non-manufacturers
expect their sentiment to recover steadily over the coming three
months.

For a graphic on the Reuters Tankan and BOJ tankan, click:
http://link.reuters.com/nyj89h

Exporting sectors including makers of cars and precision
machinery led the recovery in manufacturing confidence, but many
firms complained of sluggish domestic demand and a profit squeeze
due to deflation.

Companies also face uncertainty, and weak demand and excess
production capacity are keeping a lid on capital spending.

Asked what they would prioritise if profits recover, 31
percent of companies said they would seek to boost internal
reserves and only 11 percent said they would prioritise capital
spending.

And while twenty-nine percent said they would seek to lift
wages, 76 percent said that government moves to tighten
regulations on hiring temporary workers would not lead to an
increase in full-time workers.

Eleven percent said they would increase shareholder returns.

Among manufacturers, sentiment in all sectors except electric
machinery makers either improved or remained unchanged from the
previous month. The recovery was more patchy among service-sector
companies, according to the survey, which was taken from Jan. 29
to Feb. 12.

“Business in emerging economies has continued to lead our
overall performance,” a chemicals company said in the survey.

“Our Chinese market has been performing well but a recovery
has not been seen in the North American and domestic markets,” a
precision machinery company said.

Sluggish domestic demand and deflation dealt a heavy blow to
service-sector firms such as retailers.

“Consumers are putting off purchases while seeking low-priced
items as they face uncertainty ahead and are trying to protect
their living standards,” a retailer said.

The world’s No.2 economy expanded 1.1 percent in the fourth
quarter, but growth is likely to slow early this year due to cuts
in public works and the waning impact of government stimulus.

A record 3 percent annual fall in the GDP deflator, a broad
gauge of price trends, underscored the view that the gap between
supply and demand was pushing Japan deeper into deflation.
[ID:nTOE61805L]

The BOJ has said it is ready to provide more liquidity to
markets if necessary, and economists say that could happen if
market shocks such as a sharp rise in the yen or a heavy tumble
in Tokyo shares threaten a fragile economic recovery.

Both the BOJ tankan and Reuters survey have shown Japanese
manufacturing morale recovering from a record low hit about a
year ago amid the global recession wrought by the financial
crisis.

The index readings in the Reuters Tankan 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.
(For more stories on the Japanese economy, click [ID:nECONJP])

Investment Research

(Additional reporting by Mari Terawaki and Hideyuki Sano;
Editing by Michael Watson and Edwina Gibbs)

UPDATE 2-Japan manuf mood least bleak in 1-½ yrs -poll