Japan business mood subdued on uncertainty over China: Reuters Tankan

[TOKYO] Confidence at Japanese manufacturers in July was subdued and the service sector mood dimmed the most in over a year, a Reuters poll showed, reflecting how worries about the country's economic outlook linger despite pockets of strength.

The Reuters Tankan - which closely tracks the central bank's quarterly tankan survey - also showed both manufacturers'and service-sector morale staying largely muted over the next three months.

The subdued sentiment joins a recent batch of data which have blown hot and cold on the health of Japan's economy, and shows companies were far from assured about the outlook.

The poll of 516 big and midsize firms between July 1 and 15, of which 285 responded, showed business managers were worried about the state of China's economy - a major market for Japanese exporters. "Asian markets centring on China are not performing very well. We have not felt a recovery in domestic markets related to private consumption either," said one chemicals producer.

The downturn in China's economy, which is on course to grow at its slowest pace in over two decades this year, has continued to hurt exports and manufacturing across much of Asia. In Japan, data in the past few weeks showed shipments and output weakening, but capital expenditure climbing solidly.

The recent stock market rout in China, Greece's debt woes and sluggish global growth have added to the uncertainty over Japan's economic prospects.

The Bank of Japan trimmed its growth forecast on Wednesday but held off on offering fresh stimulus, convinced that an expected pick up in consumption will help accelerate inflation toward its 2 per cent target next year.

The Reuters Tankan sentiment index for manufacturers held steady at 14 in July as declines in materials sector including steel and textiles/paper firms offset gains in processing industries. The index is seen inching up to 15 in October.

The service-sector index tumbled from a record high of 36 in June to 24, the biggest decline since May 2014 when a sales tax hike dealt a blow to consumers.

The Reuters tankan had further bad news, with retailers' mood plunging from over one year highs seen in June, weighing on the overall service sector mood.

It bodes ill for private consumption, which accounts for roughly 60 per cent of the economy and is needed to pick up to cement a recovery from an expected slowdown in growth in the second quarter. "Customers are staying away due to an unusually rainy weather and summer goods sales are slumping," said one retailer.

REUTERS