By Tetsushi Kajimoto
TOKYO (Reuters) - Japanese manufacturers turned less gloomy about their business conditions in December while the service sector outlook improved from the prior month's survey, the Reuters Tankan poll showed, ahead of an expected economic stimulus package to bolster the economy.
Manufacturers were the most pessimistic since 2013 in the November survey and the service sector mood was at three-year lows, as the world's third-largest economy weathered a global slowdown, natural disasters and a national sales tax hike.
The monthly poll, which tracks the Bank of Japan's (BOJ) closely watched tankan quarterly survey, found sentiment was expected to further improve among manufacturers and non-manufacturers over the coming three months.
As the protracted Sino-U.S. trade war remains unresolved and global demand weakens, Japan's policymakers are hopeful that solid domestic demand on the back of a tight labour market will help to offset the slump in the country's exports.
Compared with three months earlier, the Reuters Tankan manufacturers' sentiment index remained largely unchanged, while the one for the service sector stood lower, pointing to subdued readings in the quarterly BOJ tankan due on Dec. 13.
The central bank will closely scrutinise the tankan at its Dec. 18-19 policy-setting meeting. It is in no mood to top up its already massive monetary stimulus now given that markets remain stable and it has little ammunition left to battle another financial crisis.
In the Reuters poll of 502 large- and mid-sized companies, in which 258 firms responded on condition of anonymity, many voiced concerns about a fallout from the prolonged trade war between Washington and Beijing as well as from the effects of a sales tax hike at home to 10% on Oct. 1.
"Our sales fell more than 10% in October from a year earlier because of the sales tax hike. There was not a lot of front-load demand, but pull-back was larger than we expected," a manager of a manufacturer wrote in the survey.
The sentiment index for manufacturers stood at minus 6, up three points from the previous month, according to the survey conducted Nov. 20-Dec. 2. Compared with three months ago, the index was up one point. It is seen rising to minus 1 in March.
The service-sector index grew to plus 14, up two points from the previous month. Compared with three months ago, the index was down five points. It is seen rising to plus 18 in March.
The BOJ's last tankan showed big manufacturers' confidence fell to a six-year low in the July-September quarter, a sign the Sino-U.S. trade war was taking a toll on the export-led economy.
Japan's economy ground to a near halt in July-September as the global slowdown knocked exports and consumer spending weakened.
The government is looking to finalise an economic stimulus package totalling $120 billion to support the economy and build infrastructure to cope with big natural disasters, two government officials with direct knowledge of the matter said.
Including private-sector and other spending, the package would come to around 25 trillion yen ($230 billion), they told Reuters, declining to be identified because the package has not been finalised.
The Reuters Tankan indexes are calculated by subtracting the percentage of pessimistic respondents from optimistic ones. A negative figure means pessimists outnumber optimists.
(Reporting by Tetsushi Kajimoto; Editing by Jacqueline Wong)