news blog from Doreatha

* Reuters poll closely correlated with BOJ tankan* Europe crisis, global slowdown, yen hurt corporate moraleBy Tetsushi Kajimoto and Izumi NakagawaTOKYO, Oct 13 (Reuters) - Japanese manufacturing sentiment worsened in October for the first time since the aftermath of the March earthquake and faltering global growth combined with a strong yen is expected to dampen it further, a Reuters poll showed on Thursday.The monthly poll, highly correlated with the Bank of Japan’s closely watched quarterly tankan corporate survey, added to growing evidence that the economy’s quick rebound from the devastating earthquake and tsunami in March is losing momentum.The manufacturing sentiment index, derived by subtracting the percentage of pessimistic responses from optimistic ones, fell two points from September to plus 6, the first drop since it plunged by a record in April after the March 11 disaster.The index is seen sliding further to plus 4 in January, dragged down by sectors such as electric machinery and transport equipment.The Reuters survey follows a surprisingly strong core machinery orders report for August, but Wednesday’s data failed to dispel concerns about the economy’s prospects.Europe’s debt crisis and a strong yen raised worries that exports will struggle to support a fragile recovery from the March disaster, keeping the Bank of Japan under pressure to take further action after it eased its policy in August.The BOJ’s latest tankan showed on Oct. 3 that Japanese big manufacturers’ sentiment improved in the third quarter on the back of a post-disaster recovery, but that they were cautious about business in the months ahead.SENSE OF CAUTIONThat sense of caution was also apparent in the Reuters Tankan, taken from Sept. 26 to Oct. 7. The poll covered 400 big companies, of which 250 responded.In a sign weak domestic demand cannot lend support to the world’s No.3 economy, service-sector firms’ sentiment index fell for the second straight month to barely above zero, with their mood seen rising only slightly in the coming three months.The index for non-manufacturers fell two points to plus 1, down for two months in a row, reflecting a slump among retailers. The index is expected to edge up to plus 3 in January.”Our business was improving from the earthquake with help from automobiles, but the situation is turning severe due to continued strength in the yen and financial jitters in Europe and the United States,” one transport equipment firm said.A machinery firm said: “Our orders are declining substantially due to the ripple effect from Europe’s fiscal concerns and China’s monetary tightening.”The debt crisis in Europe has prompted heavy safe-haven flows into the yen, which rose to a record high of 75.94 against the dollar in mid-August, threatening Japan’s export-led recovery. The dollar has been trading in a range between 76-78 yen since then .Japan’s auto lobby cut its forecast for this year’s domestic vehicle sales by 10 percent due to the triple blow of weak demand, the yen’s gains and the March disaster that crippled production and sales.Japan’s economy has probably emerged from a recession triggered by the March disaster, but analysts expect a bigger slowdown in the final months this year than previously thought.The BOJ left monetary policy steady on Friday, holding off on tapping its depleted policy arsenal for now. The BOJ holds its next rate review on Oct. 27 when it will issue new economic projections in its twice-yearly outlook report.