Japan big manufacturers' mood worsens on China woes, capex plans firm-tankan

* Big manufacturers' mood worsens 3 points to +12 * Big non-manufacturers' mood up 2 points to +25 * Big firms plan 10.9 pct rise in FY 2015/16 capex * Most firms see conditions worsen ahead - tankan (Adds analyst quotes, detail) By Leika Kihara and Tetsushi Kajimoto TOKYO, Oct 1 (Reuters) - The confidence of Japan's big manufacturers worsened in the three months to September, the central bank's tankan survey found on Thursday, raising doubts the government's "Abenomics" policies of fiscal and monetary stimulus can do much more to improve Japan Inc's cautious economic outlook.

The service-sector's mood, however, improved to more than a two-decade high and big firms maintained their bullish capital expenditure plans, offering some relief to policymakers worried at growing signs that Japan may slide into another recession.

While the mixed reading alone may not nudge the Bank of Japan into expanding stimulus immediately, it will keep the BOJ under pressure to offer monetary support to keep overseas headwinds from curtailing corporate spending plans too severely, analysts say.

The headline index for big manufacturers' sentiment fell by 3 points to plus 12, marking the first deterioration in three quarters and roughly matching a median market forecast, the BOJ's quarterly business sentiment survey showed on Thursday "The tankan showed Japanese corporate sentiment held firm despite a recent run of weak data. Our main scenario is for the BOJ to wait until next April before easing policy further," said Yuichiro Nagai, an economist at Barclays Capital Japan.

"That said, we cannot rule out the chance of additional easing this month, if another weak indicator heightens the chance of a recession." Machinery makers were particularly hit hard by slumping demand for construction equipment and industrial robots in China, the tankan survey showed.

By contrast, big non-manufacturers' sentiment improved 2 points to plus 25, its highest level since 1991, as retailers enjoyed falling energy costs and a surge in shoppers from China at department stores across Japan.

Both big manufacturers and non-manufacturers expect conditions to worsen three months ahead, reflecting looming uncertainty over whether demand in emerging markets will pick up.

Still, big firms expect to increase capital spending by 10.9 percent in the fiscal year ending in March 2016, up from their plans three months ago and exceeding market forecasts.

The tankan will be among key indicators for central bank policymakers to scrutinise when they meet for two rate reviews this month - one next week, and another on Oct. 30 when the BOJ publishes fresh long-term economic and price forecasts.

GLOOMY OUTLOOK Japan's economy shrank in April-June and analysts expect growth to recover only modestly or even contract again in the third quarter, as exports and output slump due to weak demand in emerging Asian markets.

The BOJ has stressed that it will look through the effect of lower oil prices and won't respond to temporary economic slumps, as long as companies keep increasing wages and capital expenditure.

But the patchy reading highlights the fragile nature of Japan's recovery, swayed heavily by the economic health of China and other emerging markets.

Companies of almost all sizes and sectors see conditions deteriorating three months ahead, including retailers now enjoying booming sales from surging inbound tourism, the survey found.

"Considering the falls in factory output and instability in financial markets, it's not certain whether big firms will stick with those (rosy spending) plans," said Koichi Haji, chief economist at NLI Research Institute.

(Repoting by Leika Kihara and Tetsushi Kajimoto; Additional reporting by Stanley White and Kaori Kaneko; Editing by Shri Navaratnam and Eric Meijer)

Advertisement