Confidence among Japanese manufacturers improved for a fourth straight month in March and should soon turn positive, a Reuters poll showed, more signs a weaker yen and the government's stimulus plans are helping foster an upturn in the economy.
Companies said the yen, which hit a 3-1/2 year low against the dollar this month, had helped boost morale, but they were worried about rising costs of imported fuel and other raw materials, and said the recovery in demand had been so far underwhelming.
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The Reuters monthly poll, which closely correlates with the Bank of Japan's key quarterly tankan survey, pointed to a marked improvement in the BOJ tankan due on April 1, after it had worsened over the second half of 2012.
Prime Minister Shinzo Abe, who won power in December, has pushed his 'Abenomics' policy mix of monetary and fiscal stimulus to end nearly two decades of stagnation and deflation.
"Weak yen has helped improve our sales related to exports, but its effects on higher costs of parts and materials are also emerging gradually," a machinery maker said in the Reuters poll. "Our business conditions are improving as a trend overall."
The manufacturers' sentiment index rose by 2 points to minus 11 in March, led by exporting sectors including steel, metal products and machinery, according to the Reuters Tankan survey of 400 firms, of which 250 responded during March 4-18.
The BOJ's last tankan showed in December big manufacturers' sentiment was seen rising only by 2 points to minus 10 in March.
The index in the Reuters poll, which is derived by subtracting the percentage of pessimistic responses from optimistic ones, has risen by 7 points since December, although it is still in negative territory.
It is seen swinging to plus 4 in June, the March poll showed. The polls in January and February had forecast the index, which was last in positive territory was May 2012, would also be positive in April and May.
"Expectations for an economic recovery have taken root with a strong yen being corrected and stock prices rising due to hopes on Abenomics, but the underlying situation including capital spending is still difficult," another company said.
In the Reuters poll, the index for service-sector firms rose 4 points to plus 12, its highest reading since December 2007. It is seen jumping to plus 29 in June, led by sectors such as real estate/construction and retailers/wholesalers.
Expectations are high that the central bank will boost its government bond purchases at its April 3-4 policy review, the first under new Governor Haruhiko Kuroda, who has vowed to do whatever it takes to hit a new 2 percent inflation target.
(Additional reporting by Kaori Kaneko; Editing by John Mair)