TOKYO Japanese manufacturers' confidence rose for a second straight month to a half-year high in October, a Reuters poll showed, while sentiment in the services sector hit a 3 1/2-year low - highlighting the uneven nature of economic recovery.
The Reuters Tankan, which strongly correlates with the Bank of Japan's quarterly tankan survey, also found manufacturers' sentiment is expected to tumble to zero over the next three months, although non-manufacturers are seen rebounding.
The monthly poll of 532 large and mid-sized firms, of which 265 responded, was conducted Sept. 28-Oct. 12.
It follows this month's BOJ tankan showing big Japanese manufacturers' mood held steady in the third quarter although service-sector sentiment worsened to its lowest in nearly two years.
The sentiment index for manufacturers rose to 10 from 5 in September, driven by materials industries and food-processing firms, which benefited from lower import costs stemming from gains in the yen and declines in commodity prices.
It was expected to worsen to zero in January.
"We have managed to secure a profit margin by maintaining product prices while costs of fuel and raw materials have declined since the year before last," a manager at a chemicals firm said in the survey, which companies answer anonymously.
Exporters of cars and electronics, on the other hand, complained that the yen's gains over levels seen last year have weighed on profits. Their sentiment report remained flat.
A transport equipment maker said business conditions were "not so good" because of the yen's gains, softening demand in North America, and slowdown in China.
The service-sector index fell for a second straight month to 9 from 14 in September, in a worrying sign for private consumption that constitutes about 60 percent of the economy.
The service-sector index stood at its lowest level since February 2013, just two months before the central bank launched an aggressive but so far ineffective stimulus campaign to spur economic activity and get inflation up to 2 percent.
The service-sector index was seen bouncing to 22 in January.
Bad weather undermined retailers' sentiment which worsened to minus 16, the lowest reading since February 2015, when they were reeling from the effects of a sales tax hike.
"Sales have been stagnant due to the typhoons that hit in August and September and a prolonged period of rainy days," a manager of a retailing business said in the survey.
Sentiment indexes subtract the percentage of companies saying conditions are poor from those saying conditions are good. A positive number means optimists outnumber pessimists.
(Reporting by Tetsushi Kajimoto; Editing by Eric Meijer)