Confidence among Japanese manufacturers worsened slightly in the fourth quarter and firms expect conditions to deteriorate more, highlighting the challenges premier Shinzo Abe faces in reviving the economy a day after his big win in Sunday's snap election.
The headline index measuring big manufacturers' sentiment stood at plus 12, down 1 point from three months ago and worse than a median market forecast of plus 13, the Bank of Japan's closely-watched "tankan" survey showed on Monday.
Big manufacturers expect their sentiment index to fall to plus 9 in March, partly showing companies are concerned that Abe and the BOJ's efforts to weaken the yen are pushing up import costs too much.
The sentiment among big service-sector firms improved, the survey showed, suggesting consumer spending is gradually recovering from a sales tax hike in April.
However, underlining the patchy economic recovery after Japan's slip into recesssion in the third quarter, non-manufacturers expect business conditions to worsen slightly three months ahead.
"The decline in sentiment at manufacturers shows some companies are worried about the yen weak pushing up input costs," said Hidenobu Tokuda, senior economist at Mizuho Research Institute.
"Capital expenditure plans are healthy and sentiment at non-manufacturers is improving, which suggests the economy can continue to recover gradually."
Abe's election win gives him a fresh mandate to pursue policies aimed at ending 15 years of deflation and sparking durable growth.
That task became even more stiff after the economy unexpectedly slipped into recession in the third quarter due partly to the hit from the April tax hike.
Inflation is currently running at 0.9 percent, lagging the BOJ's 2 percent goal which it wants to hit in the fiscal year starting April 2015.
But Japan has little room to deploy massive fiscal stimulus given its huge public debt, while the central bank is already aggressively printing money under its quantitative easing program launched in April last year and expanded in October.
Policymakers hope that big manufacturers, which saw profits boom thanks to the weak yen and sliding oil prices, will spend more on wages and capital expenditure, helping to broaden the economic recovery.
The tankan showed big companies plan to increase capital expenditure by 8.9 percent in the fiscal year ending in March 2015, compared with a median forecast of a 8.0 percent rise.
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