By Tetsushi Kajimoto and Izumi Nakagawa
TOKYO (Reuters) - Japanese business morale improved in August and it is seen likely to remain steady, a Reuters poll found, offering a hint of economic recovery and improved confidence as firms look past the second quarter's export slump and weak consumer spending.
The Reuters Tankan - which closely tracks the central bank's quarterly tankan survey - could be a source of comfort for policymakers under pressure to deploy fresh stimulus to spur growth after Monday's negative second-quarter growth data.
The poll of 516 big and mid-sized firms between Aug. 3 and 17, of which 277 responded, showed business managers were cautiously optimistic about pick-up in domestic demand, although a slowdown in China - Japan's biggest trading partner - clouds the outlook.
Retailers' mood rebounded from the prior month's sharp drop, which led gains in the broader service sector. Manufacturers' morale hit its highest in a year, helped by food processors, oil refiners and steelmakers as oil and other commodity prices fell.
"We are able to smoothly pass on costs from inputs to the selling price. Thanks to a shortage of materials, we have reduced losses stemming from bargain sales of excess inventory," said a manager of a food processor.
Some retailers said in the Reuters monthly poll that sales on the existing-store basis have risen from a year earlier as the pullback from last year's sales tax hike has finally faded.
"The number of customers is rising at our stores nationwide. Moreover, the supply network is improving," said a retailer. Another retailer noted: "The long heat wave has spurred sales of summer goods."
The Reuters Tankan sentiment index for manufacturers rose from 14 to 17 in August, the highest reading since it hit 20 in the same month a year ago. The index is seen improving further to 19 in November.
The service-sector index rose three points to 27, after tumbling from a record high 36 recorded in June. The index is seen holding steady in November.
Retailers bounced from zero to 18 in August, a good sign for private consumption, which accounts for roughly 60 percent of the economy.