* 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
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.
WAGES KEEP FALLING
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,
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
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