Japan's business mood mixed, underlines fragile recovery - Reuters Tankan

By Tetsushi Kajimoto and Izumi Nakagawa

TOKYO (Reuters) - Japanese manufacturers' confidence improved for a second straight month in June but the service sector's mood slumped from May's record high level, a Reuters poll found, suggesting some fragility in the outlook after a first-quarter contraction.

The monthly poll, which tracks the Bank of Japan's (BOJ) closely watched tankan quarterly survey, found manufacturers' confidence was expected to increase over the next three months while service sector sentiment was seen holding steady.

Compared with three months ago, manufacturers' mood was slightly lower while the service sector was unchanged, indicating the BOJ's tankan due next on July 2 will likely show business confidence as largely steady.

The mixed results highlight some reservations about the health of the economy at a time when U.S. President Donald Trump's "America First" policy raises fears of protectionism and global trade war, clouding the outlook for export-reliant Japan.

"Appetite for capital expenditure at our clients is waning in light of increasingly protectionist policies in America and China, as well as political instability in southern Europe," a manager of a machinery maker wrote in the survey.

In the Reuters poll of 539 large- and mid-sized companies, in which 240 firms responded on condition of anonymity, managers complained about weak consumer spending, rises in oil and raw materials costs, an uncertain global outlook and labour shortages.

The sentiment index for manufacturers stood at 26, up from 22 in May, led by industrial materials producers like oil refiners and steel makers, according to the survey conducted June 4-15.

The manufacturers' index was down two points versus three months ago. The index is expected to rise to 30 in September.

The service-sector index declined to 35 from a record high of 39 seen in the previous month, with retailers likely taking a hit from weak consumer spending.

Compared with three months ago, the service-sector index was unchanged. It is expected to hold steady in September.

The BOJ's latest tankan issued in April showed big manufacturers' confidence fell for the first time in two years as worries about gains in the yen and trade friction with the United States dimmed the outlook.

The Reuters Tankan indexes are calculated by subtracting the percentage of pessimistic respondents from optimistic ones. A positive figure means optimists outnumber pessimists.

(Reporting by Tetsushi Kajimoto; Editing by Eric Meijer)