Japan corp mood up, points to better BOJ tankan

Japanese companies have become far less gloomy about economic conditions than three months ago, a Reuters poll showed, pointing to a large improvement in the Bank of Japan's closely watched tankan survey next month.

But grinding deflation will mean Japan's economic recovery remains modest and the government will keep pressuring the Bank of Japan to ease monetary policy further, analysts say.

Manufacturers were at their least pessimistic since June 2008 and predicted that the index of their sentiment could rise to near positive territory in June, thanks to solid exports to Asia, the Reuters Tankan showed.

"This means the Bank of Japan's tankan survey will show a marked improvement as well," said Yonosuke Iwata, an economist at Dai-ichi Life Research Institute. The Reuters Tankan has a 95% correlation with the Bank of Japan's tankan.

"Still, the overall economic recovery remains fragile because non-manufacturers such as retailers are facing weak domestic demad and deflation, while the effect of government stimulus is expected to fade in the near future."

The manufacturers' sentiment index in the Reuters Tankan rose 19 points from December to minus 8, its highest level since June 2008. The index is expected to rise a further seven points to minus 1 in June.

Service-sector firms were at their least pessimistic since November 2008 and expect a steady recovery in confidence over the coming three months, the poll showed.

Corporate sentiment has remained negative for nearly two years as deflation squeezes profits, and domestic demand has failed to gain momentum in the wake of the global financial crisis, according to the monthly Reuters survey, taken from Februry 26 to March 15.