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By Daniel Leussink

TOKYO (Reuters) – Japan’s manufacturers were their least pessimistic in four months in August, the Reuters Tankan survey of business sentiment showed on Tuesday, but signalled a slow recovery from the coronavirus pandemic.

The reading highlights the immense task policymakers face to pull the economy out of its deepest recession on record after the coronavirus pandemic pummelled corporate and household activity.

The poll, which tracks the Bank of Japan’s (BOJ) closely watched “tankan” quarterly survey, pointed to a modest recovery, with manufacturers’ morale seen somewhat less negative in the coming months.

Tuesday’s survey found that the mood of manufacturers rose to minus 33 in August from minus 44 the previous month, its highest since February. The service-sector gauge was at minus 23 from minus 26.

The Reuters Tankan index readings are derived by subtracting the percentage of respondents who say conditions are poor from those who say they are good. A negative reading means that pessimists outnumber optimists.

“Demand is on an improving trend compared to the first quarter but it remains at about 70% of what we had projected,” a manager at a transport equipment maker wrote in the survey.

Data on Monday showed Japan was hit by its largest economic slump on record in the second quarter as the health crisis delivered a blow to consumption and exports.

Though the overall mood remained pessimistic, all industry categories but oil refinery/ceramics were less gloomy than in the previous month, the poll showed.

Some firms warned of uncertainty in the months ahead because of resurfacing U.S.-China trade tensions.

“Conditions in the domestic market are still bad,” a manager at a chemicals maker wrote in the survey. “Even if quantity (of orders) returns in Asia, prices won’t match that due to intensifying competition.”

Manufacturers’ sentiment was seen recovering further to minus 22 in November, while that of service-sector firms was expected to drop to minus 26, according to the poll of 495 large- and mid-sized non-financial companies, of which 232 firms responded, on condition of anonymity.

Among services, those from the information/communications and retailers sectors were positive about business conditions, while the others remained gloomy.

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