UPDATE 4-Japan manufacturer pessimism lifts-Reuters Tankan

* Manufacturers’ sentiment exits negative territory

* Companies cautious over outlook

* Deflation, rising commodity prices fuel concern

* BOJ gov: econ growth rate to rise, will keep easy policy
(Adds details)

By Izumi Nakagawa and Rie Ishiguro

TOKYO, April 15 (BestGrowthStock) – Japanese manufacturers’ sentiment
hit its highest level in two years as robust exports continued to
drive the economic recovery, a Reuters poll showed, but they
expected no further improvement in sentiment in the three months
ahead.

Service-sector firms were their least pessimistic since
October 2008, though they lagged manufacturers.

Manufacturers were also cautious about the outlook due to
concerns about weak domestic demand, persistent deflation and
rising commodities prices abroad, the monthly Reuters Tankan
survey conducted from March 26 to April 12 showed.

“It confirmed that the economic recovery is spreading to
overall sectors, thanks to Asia-bound exports, government
subsidies for household appliances and signs of the job market
bottoming out,” said Yoshimasa Maruyama, an economist at Itochu
Corp.

“Still, Japanese firms do not have enough factors to be
optimistic about the economy looking ahead, even though their
confidence has returned to neutral levels.”

The global recovery trend helped send the Nikkei average
(.N225: ) to an 18-month closing high during the survey period. It
also climbed 5.2 percent in the January-March quarter.

In the poll, which has a 95 percent correlation with the Bank
of Japan’s tankan survey, the manufacturers’ sentiment index rose
to zero, up 8 points from March and nudging out of negative
territory for the first time since April 2008.

A negative figure means pessimists outnumber optimists.

The improvement was led by export-related sectors such as
machinery makers and electrical appliance makers, who benefit
from brisk demand from China and other Asian economies.

China’s economic growth — a surprisingly robust annual pace
of 11.9 percent in the first quarter [ID:nTOE63D091] — has
boosted market sentiment. But its voracious demand for raw
materials has fuelled a rally in commodity markets, creating a
new source of headaches for Japanese firms.

Most Japanese companies are avoiding hiking prices because
they believe domestic demand is too weak, another Reuters poll
showed, which means higher commodities prices squeeze corporate
profits. [ID:nTOE63E01R]

In the Reuters tankan, manufacturers forecast that their
sentiment index would remain at zero in July.

The index for service sectors rose to minus 14 from minus 22
in March and is expected to recover further to minus 5 in July,
according to the poll of 400 large firms, of which 228 responded.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
More stories on Japan’s economy: [ID:nECONJP]
For related table: [ID:nTOE63D05S]
For related graphic: http://r.reuters.com/vyw95j
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Seven & I Holdings (3382.T: ) and other leading Japanese
retailers have signaled that the worst is over after a three-year
downturn as they expect a modest profit recovery this year.
[ID:nTOE63704Y]

Analysts expect sentiment for both manufacturers and
service-sector firms to keep recovering in the foreseeable future
as exports maintain momentum and domestic demand picks up from
the current low level.

UNDER PRESSURE

BOJ Governor Masaaki Shirakawa said on Thursday the pace of
economic growth in Japan is likely to rise gradually as
improvements in corporate activity spread to households, but the
central bank will stick to a very easy monetary policy to pull
Japan out of deflation.

“The risk of another sharp deterioration in Japan’s economy
has receded significantly,” Shirakawa told a meeting of the
bank’s regional branch managers. [ID:nTKX006760]

The BOJ held off on new initiatives at its monetary policy
meeting last week and struck a more positive note on the economy.
[ID:nTOE63604Y]

Some investors took that as a sign that it might be done with
monetary easing, but sources familiar with central bank thinking
say it is ready to act again to fight deflation. [ID:nTOE63D00K]

Analysts also say the government is not about to let up in
its calls for more monetary easing to support a fragile economy
amid a falling public approval rating ahead of an election for
parliament’s upper house expected in July.

“The BOJ may say the economic recovery is spreading broadly
but the government is unlikely to be convinced, with the jobless
rate still at a high level,” said Rei Tsuruta, an economist at
Mitsubishi UFJ Research and Consulting.

“It’s hard to imagine the government easing the pressure on
the BOJ.”

In a sign that Japan’s economic recovery is still spotty,
revised industrial output data for February confirmed Japanese
factory output fell for the first time in a year. [ID:nTKV006368]

Economists polled by Reuters nudged up their growth forecasts
for Japan in the first quarter as solid exports, particularly to
China, and firm consumption underpin a slow yet steady recovery.
[ID:nLAG006244]

The Nikkei business daily reported on Thursday that Japan’s
government is set to keep its overall view of the economy
unchanged in its monthly report for April and will say the
economy is gaining ground steadily. [ID:nSGE63D0E7]

The BOJ could say this month that consumer prices will stop
falling in the fiscal year from April 2011, sources say, but
analysts said it would keep its easing bias as a full-fledged
escape from deflation is still a distant goal. [ID:nTOE63C026]

Penny Stocks

(Additional reporting by Leika Kihara, Tetsushi Kajimoto and
Hideyuki Sano; Editing by Michael Watson)

UPDATE 4-Japan manufacturer pessimism lifts-Reuters Tankan