WEAKENING demand at home and abroad weighed on Japanese manufacturers’ confidence in the first quarter and big companies cut spending plans, clouding the outlook for Prime Minister Shinzo Abe’s drive to reflate the economy.

    But the latest central bank survey showed service-sector firms saw business conditions improve to a nearly one-year high as they enjoyed lower oil costs and a surge in inbound tourism, underscoring the patchy nature of Japan’s recovery.

    Both manufacturers and non-manufacturers expect conditions to worsen slightly in the coming three months, the closely-watched “tankan” survey showed yesterday. That’s a worrying sign for the Bank of Japan (BOJ) as it prints money aggressively in the hope of nudging companies and households to boost spending.

    “We can see that companies are more worried about overseas demand. At the same time, the measure of domestic demand has not improved,” said Shuji Tonouchi, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities.

    The headline index gauging big manufacturers’ sentiment was flat from three months ago at plus 12 in March, the survey showed, surprising markets that expected a two-point improvement.

    Big non-manufacturers’ sentiment improved by 2 points to plus 19, beating a median forecast of plus 17 and matching a high hit in June 2014.

    The survey will be among data BOJ policymakers scrutinize at its rate review next week for clues on whether their massive monetary stimulus is working its way through wider sectors of the economy.

    Big manufacturers maintained their conservative dollar-yen forecasts and were cautious about business conditions despite projecting increases in sales and profits in the year that began yesterday, the survey showed.(SD-Agencies)