Japan March manufacturers' mood up, Ukraine crisis clouds outlook - Reuters Tankan

Employees wearing protective face masks work on the automobile assembly line as the maker ramps up car production with new security and health measures as a step to resume fully operation, during the outbreak of the coronavirus disease (COVID-19), at Kawasaki factory of Mitsubishi Fuso Truck and Bus Corp., owned by Germany-based Daimler AG, in Kawasaki, south of Tokyo, Japan May 18, 2020. REUTERS/Issei Kato

By Kantaro Komiya

TOKYO (Reuters) - Japanese manufacturers' business confidence improved for the first time in three months in March, as automakers became less pessimistic, though firms feared a fresh surge in energy prices due to the Ukraine crisis, the Reuters Tankan poll showed.

Service-sector sentiment turned negative for the first time since October due to COVID-19 curbs and as global inflation squeezed corporate profits, according to the poll, which tracks the Bank of Japan's (BOJ) closely watched "tankan" quarterly survey.

While the mood among manufacturers remained positive for the 14th straight month, managers voiced concerns about a wide array of downside risks that cloud the outlook for the world's third-largest economy, days before the BOJ's next policy meeting.

"It's a quadruple whammy," said a machinery maker manager in the poll, referring to Russia's invasion of Ukraine, a hit to output from Omicron infections, supply disruptions and soaring costs on everything from high-tech chips to transportation.

The Reuters Tankan manufacturers' sentiment index rose to 8 in March from 6 last month, marking its first month-on-month improvement since December. The service-sector index extended a decline for the second month to a five-month low of minus 1, compared with the previous month's 3.

(For a detailed table of the results, click)

Manufacturers' sentiment got a boost from fading pessimism among automakers, whose sub index rose to a three-month high of minus 14 in March from February's minus 29.

Support also came from growing optimism among food and precision machinery producers, and the steel/nonferrous metals sub-sector turning less negative.

Many firms, however, expressed worries about commodity inflation in the March 2-11 poll of 501 big and mid-sized companies, of which 240 responded.

"While demand is recovering, price hikes in energy and raw materials have made it hard to maintain profit levels," said a paper company manager.

In non-manufacturing, three out of six sectors saw their sentiment worsen, including real estate/construction and retailers.

The government's extension of coronavirus curbs has been suppressing shopper turnout and prevented sales from recovering to their pre-pandemic levels, a retail manager said.

While nationwide daily infections peaked at more than 100,000 in early February, they remained elevated through much of the month. The government may lift pandemic curbs still in place in Tokyo and 17 other prefectures as early as March 21, when they are set to expire.

Looking ahead, manufacturers saw business sentiment rising to 11 three months ahead, while services firms expected their mood to recover to 10, but those outlook readings were less positive than 18 and 14, respectively, recorded last month.

The Reuters Tankan index readings are calculated by subtracting the percentage of respondents who say conditions are poor from those who say they are good. A positive reading means optimists outnumber pessimists.

The Bank of Japan will release its quarterly tankan business survey next on April 1 at 8:50 a.m. local time (March 31, 2350 GMT).

The central bank is scheduled to end a two-day rate review on Friday, its first since the start of the Ukraine crisis.

(Editing by Daniel Leussink and Jacqueline Wong)

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