By Kantaro Komiya

TOKYO, (Reuters) – Japanese automakers saw their business confidence rise in March for the first three months. However, they were less pessimistic than usual, despite the fact that firms feared a new surge in energy costs due to the Ukraine crisis.

According to the poll which closely tracks the Bank of Japan’s quarterly “tankan”, survey, service sector sentiment fell for the first-time since October.

The mood of manufacturers was positive for 14 consecutive months, but managers expressed concerns over a range of risks that could cloud the future outlook for the world’s third-largest economic sector, days before BOJ’s next policy meeting.

Managers of machine-making companies said that Russia’s invasion has been a “quadruple whammy”. This refers to Ukraine’s invasion, which caused a drop in production, disrupted supply, and increased costs, including high-tech products like transportation.

The Reuters Tankan manufacturers sentiment index rose from 6 to 8 last month to 8. This marks its first improvement month-over-month since December. In March, the service-sector index fell to a fifth-month low at minus 1. This is a significant decrease from the month before.

Click here to see a more detailed table with the results.

The subindex of automakers’ pessimism, which rose from February’s 29 to minus 29, reached a three-month peak at minus 14.

Increasing optimism from food and precision machine producers and the decreasing negative outlook of steel/nonferrous Metals sub-sector also helped to support this sector.

However, many firms expressed concern about the escalating price of commodities in the poll conducted by 501 large and medium-sized businesses on March 2-11. 240 companies responded.

A paper company manager stated, “While there is a recovery in demand, it has been difficult for us to maintain our profit levels due to price increases in energy and raw material.”

The sentiment in non-manufacturing sectors, which includes real estate/construction, and retailers, was worsened by three of six.

Retail managers stated that government extension of coronavirus restrictions has suppressed shoppers and prevented sales from recovering at their pre-pandemic level.

However, the nationwide number of daily infected people per capita remained at an all-time high throughout February. Pandemic restrictions in Tokyo, 17 prefectures and other areas may be lifted by the government as soon as March 21. They are due to expire.

In terms of the future, both manufacturers and service firms saw business sentiment rise to 11 over three months. However, those readings were lower than last month’s 18-and-14 respectively.

Calculating the Reuters Tankan Index readings is done by subtracting from respondents who said conditions were poor, those who stated they are good. If the reading is positive, it means that optimism outnumbers pessimists.

On April 1, 2008, at 08:50 local time (March 31st 2350 GMT), the Bank of Japan’s quarterly tankan survey will be released.

Two-day rate reviews by the central bank are scheduled for Friday. It is their first such review since the Ukraine crisis.