The most recent Reuters Tankan poll reveals a continuing sense of pessimism among Japanese manufacturing companies, even as the sentiment among the services sector looks set to improve. The Reuters Tankan manufacturers’ sentiment index touched -6 in December vs. -9 in November, albeit still in negative territory. Meanwhile, the service sector sentiment index has increased to +14 in December from +12 in November, strengthening the outlook among services companies.

Manufacturers in Japan were most concerned about the fallout of the recent sales tax hike which was implemented in October, in addition to the external risks faced by ongoing trade tensions between the US and China. The poll also forecasts the pessimism to continue among manufacturers in the coming months, with this index expected to rise to -1 in March 2020.

Although the sentiment in the services sector is still below the +19 reading from three months prior, it is expected to improve in the coming months. According to companies polled, the service sector sentiment index is forecast to rise to +18 in March 2020.

To support the worsening outlook among businesses and consumers, Japan’s government is considering rolling out fiscal stimulus worth $120 billion in a bid to revive economic growth by investing in building infrastructure that would withstand natural disasters. In addition, the government could roll out more spending measures as the export-oriented economy suffers from the spillover effect of the ongoing trade war.