BOJ tankan seen showing improved business mood, capex

By Leika Kihara TOKYO (Reuters) - A central bank survey out next week is expected to show Japanese business confidence improved in the three months to December as robust fiscal and household spending made up for soft exports -- thanks to Premier Shinzo Abe's stimulus policies. The Bank of Japan's quarterly "tankan" survey is also expected to show companies maintaining upbeat capital expenditure plans, according to a Reuters poll, reflecting their optimism over the outlook as the recovery gathers momentum. Such readings will underscore the Bank of Japan's view that the economy is recovering moderately and allow it to hold off on expanding stimulus in coming months, although some analysts warn of economic uncertainties next year. "The tankan will be in line with the BOJ's upbeat projections and offer no reason to ease policy," said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute. "The economy will be booming until the sales tax hike in April. After that, there's a lot of uncertainty, including whether the strength in capital expenditure will be sustained and whether exports will pick up." The central bank's quarterly tankan survey, due on Monday, is expected to show the headline index for big manufacturers' sentiment improved three points from the previous quarter to plus 15, according to a Reuters poll of 21 economists. That would be the fourth straight quarter of positive readings, which means optimists outnumbered pessimists, supporting the view that the economy is steadily emerging from a temporary soft patch in July-September. The Reuters poll found that service-sector mood also improved as consumers rush to beat the sales tax hike, with the big non-manufacturers' index seen up two points at plus 16. Big firms are seen raising capital spending by 5.5 percent in the current business year to next March, up from 5.1 percent in the previous tankan, the poll showed, a sign the positive mood is gradually encouraging companies to spend more. Big manufacturers and non-manufacturers both expect business conditions to improve in the three months to March, when increased demand ahead of the April tax hike will keep household spending strong, according to the Reuters poll. Japan's economy outpaced its G7 counterparts in the first half of this year as Abe's stimulus policies boosted business and household sentiment. Growth slowed in July-September on soft exports, but analysts expect it to accelerate again in the run-up to the sales tax hike. Public works spending is also likely to offset the continued weakness in exports, thanks to a fiscal stimulus package aimed at softening the blow of higher sales tax. The BOJ has said the economy can weather the pain from the sales tax hike and meet the bank's goal of achieving 2 percent inflation in roughly two years, due in part to its aggressive monetary stimulus launched in April. The central bank is thus widely expected to keep monetary settings unchanged at its next rate review on December 19-20. (Editing by Eric Meijer)