Japan service sector firms' mood perks up, Omicron clouds outlook: Survey

Confidence among Japan's large service-sector firms improved in the three months to December, a closely watched central bank survey showed, suggesting the economy was gradually emerging from the hit of the coronavirus pandemic.

But big manufacturers' confidence was flat from three months ago and companies saw business conditions worsening ahead, underscoring the fragile nature of Japan's economic recovery.

The outcome offered a mixed picture for policymakers seeking to reflate Japan's fragile economy by maintaining ultra-loose monetary policy and a massive pandemic-relief spending package.

The headline index gauging big manufacturers' sentiment stood at plus 18 in the final quarter of 2021, unchanged from the previous quarter, the Bank of Japan's (BOJ) tankan survey showed on Monday. It compared with a median market forecast for plus 19.

An index gauging big non-manufacturers' sentiment rose to plus 9 from plus 2 three months ago, the survey showed, in a sign the Sept. 30 lifting of state of emergency curbs to combat the COVID-19 pandemic was helping lift consumption. It compared with market forecasts for a reading of plus 6.

Big manufacturers and non-manufacturers expect business conditions to worsen three months ahead, though the survey was closed too soon to incorporate the impact of the recent spread of the Omicron variant. The survey was conducted from Nov. 10-Dec. 10 with most of the replies coming in by Nov. 29, a BOJ official told a briefing.

The survey also showed big firms plan to increase capital spending by 9.3% in the year ending in March 2022, less than the market's median forecast for a 9.8% gain.

Japan has lagged other countries in staging a strong rebound from last year's pandemic hit, shrinking an annualised 3.6% in July-September due to weak consumption and output hit by a spike in infections and supply constraints.

While analysts expect growth to bounce back in the final quarter of this year, some warn the emergence of Omicron clouds the outlook and may keep the recovery feeble next year.

(Reporting by Leika Kihara and Tetsushi Kajimoto; Editing by Sam Holmes)