TOKYO Confidence at Japanese manufacturers remained largely subdued in February and the mood was seen deteriorating over the coming three months, a Reuters poll showed, highlighting concerns about slowing global growth and turbulent markets.
In a sign of the stiff headwinds dragging on growth in the world's third-largest economy, service-sector sentiment also soured though it was expected to stabilize somewhat in the near term, the Reuters Tankan showed.
The monthly poll, which strongly correlates with the Bank of Japan's quarterly tankan survey, suggested the economy remains underpowered after declines in exports and consumer spending led to a contraction in output in the fourth quarter.
The poll of 513 big and mid-sized Japanese companies between Feb. 1-16, of which 265 responded, was taken at a time when heightened global risk aversion shook up the yen. The safe-haven Japanese currency rose sharply, hurting exporters' morale as the dollar fell to a 15-month low below 111 yen last week.
Even the central bank's shock adoption of negative interest rates late last month has hardly helped turn around business sentiment, as it failed to boost Tokyo stock prices or weaken the yen.
"Demand from China has slowed a lot and there are signs of demand for some semiconductor-related parts declining," a manager at a rubber maker said in the survey.
An electric machinery producer said: "Our business results stand at the previous year's levels but have somewhat fallen short of our estimate. Yen rises could aggravate the situation."
The Reuters Tankan sentiment index for manufacturers inched up to 7 in February from 6 in January, helped by gains in food processing and precision machinery industries, while cars, steel and oil refineries sagged. It is seen falling to 4 in May.
The service sector index fell to 21 from 27 in January, weighed by retailers and wholesalers. The index is seen unchanged in the next three months.
The BOJ tankan, one of the major indicators the central bank scrutinizes in guiding monetary policy, showed in December that business mood held steady but it was seen deteriorating three months ahead - reflecting the slowdown in emerging economies.
Japan's economy contracted by an annualized 1.4 percent in October-December, more than expected, as private consumption and exports slumped. Analysts see any recovery in the current quarter to be modest due to weak demand both at home and abroad.
(Reporting by Tetsushi Kajimoto and Izumi Nakagawa; Editing by Shri Navaratnam)
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