Japan business mood hits near 6-yr high, Abe set to raise tax


* Big manufacturers' sentiment DI +12 vs June +4

* Service-sector sentiment also improves slightly

* Big firms plan 5.1 pct increase in FY2013/14 capex

* Sentiment seen unchanged 3 months ahead, outlook murky

* Wages continue to fall, household spending slips

By Leika Kihara

TOKYO, Oct 1 (Reuters) - Japanese manufacturers' sentiment

improved sharply in the three months to September to a near

six-year high, a closely-watched central bank survey showed,

cementing the case for Premier Shinzo Abe to proceed with a

planned sales tax hike next year.

Service-sector sentiment also brightened slightly and big

companies plan to increase capital spending, a sign robust

personal consumption and a pickup in exports are solidifying a

recovery in the world's third-largest economy.

The latest result made it a near certainty Abe will give the

go-ahead of the tax hike on Tuesday, and compile a stimulus

package to cushion the blow to the economy, analysts said.

"This is very constructive in terms of the assessment of the

current economic situation. There is no reason that Abe should

stop raising the sales tax," said Masamichi Adachi, senior

economist at JPMorgan Securities in Tokyo.

But there were signs the improvement in mood may have peaked

partly due to uncertainty on overseas economies, underscoring

the challenge policymakers face in sustaining the positive

momentum long enough to persuade firms to raise wages.

The headline index for big manufacturers' sentiment rose 8

points to plus 12 in September, much better than a median market

forecast for plus 7, the Bank of Japan's "tankan" quarterly

survey showed on Tuesday.

It was the third straight quarter of improvement and the

highest reading since the survey of December 2007, suggesting

that the feel-good mood generated by Abe's reflationary policies

is broadening.

The sentiment index for big non-manufacturers also rose 2

points to plus 14 in September with hopes for bigger public

works spending lifting morale among construction firms.

Abe has cited the tankan outcome as key factor in deciding

whether to raise the sales tax from next April to 8 percent from

5 percent, which is part of a two-stage increase in the tax rate

aimed at fixing Japan's tattered finances.


Japan's economy expanded for three straight quarters in

April-June, outpacing many G7 nations, as Abe's reflationary

policies bolstered household spending and drove down the yen,

benefiting exports.

The BOJ also offered an intense burst of stimulus in April,

pledging to double the base money via aggressive asset purchases

to achieve its 2 percent inflation target in two years.

Sentiment improved sharply for sectors that benefit from a

weak yen, such as automakers and electronic goods makers. Big

manufacturers revised down their yen forecasts for the current

business year to 94.45 to the dollar, from 91.20 yen in the

previous tankan survey.

But there were some signs of potential weakness in the

outlook: Both big manufacturers and non-manufacturers expect

business conditions to stay largely unchanged three months

ahead, a sign the improvement in mood may have peaked.

Big firms plan to increase capital spending by 5.1 percent

in the current fiscal year to next March, lower than 6.0 percent

projected in a Reuters poll. That was largely unchanged from

their plan three months ago, despite government plans to boost

tax incentives to encourage companies into spending more.

"There's a gap between improving sentiment and the state of

the real economy, which slowed somewhat in July-August as shown

by recent indicators such as exports, factory output and

consumption," said Naoki Iizuka, economist at Citigroup Global

Markets Japan.

The BOJ raised its assessment of the economy in September to

say it was recovering moderately but some officials worry about

slowing growth in emerging economies, many of which are big

markets for Japanese cars and electronic goods.

Another concern for policymakers is whether companies will

finally start to raise wages, instead of sitting on a huge pile

of cash, so that consumers have more money to spend.

So far, the signs are not good. Wage earners' total cash

earnings fell 0.6 percent in the year to August with regular pay

down for 15 months in a row, government data showed on Tuesday.

Separate data showed household spending fell 1.6 percent in

August from a year earlier, a sign the rising cost of daily

necessities may be weighing on consumer spending.

Such weak signs may be discussed at the BOJ's two-day rate

review that ends on Friday, although the central bank is widely

expected to keep its monetary settings unchanged.

The tankan's sentiment indexes are derived 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.

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