By Tetsushi Kajimoto
TOKYO (Reuters) – Japanese manufacturers became more confident about business conditions in July while those in the services sector declined, the monthly Reuters Tankan survey showed on Wednesday, reflecting an uneven economic outlook.
The poll of 506 large nonfinancial companies was conducted two weeks before the Bank of Japan (BOJ) holds a policy review on July 30-31. Investors are looking for clues on when the BOJ will raise interest rates, after doing so in March for the first time since 2007 and then deciding last month to reduce its bond purchases.
The central bank will scrutinize its own tank – or short-term outlook – as well as other data for signs of sustained inflation and strong household consumption supported by rising wages, which could strengthen the case for further interest rate hikes.
In a Reuters Tankan poll, which closely tracks the BOJ’s tankan, the sentiment index for manufacturers was at plus 11, up five points from June and its first rise in four months.
However, manufacturers expect the index to fall back to plus 9 in the next three months.
“Rising domestic prices have weakened consumption and China’s economic slowdown has caused raw materials shipped from the Middle East to China to enter the Japanese market at low prices,” a manager at a chemical plant wrote in the Reuters poll, conducted July 2-12, on condition of anonymity.
“The double whammy of weak domestic demand and cheap imports from overseas is hampering our sales volume.”
A food processing company manager wrote: “Input prices have risen and remain high due to the weak yen as we struggle to pass on costs to our customers.”
The Reuters Tankan services index fell for the first time in three months, to 27 from 31 in the previous month. Non-manufacturers had forecast the index at 28 in October.
The Reuters Tankan index is calculated by subtracting the percentage of pessimistic responses from optimistic responses. A positive number indicates that there are more optimists than pessimists.
(Reporting by Tetsushi Kajimoto; Editing by Christopher Cushing)
