By Tetsushi Kajimoto and Izumi Nakagawa
TOKYO (Reuters) - Confidence among Japanese manufacturers held firm in December and service-sector sentiment rose for a second straight month, the Reuters Tankan poll showed on Thursday, underscoring steady economic growth driven by both external and domestic demand.
The monthly poll, which tracks the Bank of Japan's (BOJ) closely-watched tankan quarterly survey, found manufacturers' mood up a tad from three months ago and service-sector morale holding steady, signaling a firm reading in the upcoming BOJ tankan.
Solid tankan results should be encouraging for the BOJ, which will scrutinize the survey readings, due Dec. 15, at its policy meeting later this month. Investors are expecting the central bank to maintain the current easing stance for now.
In the Reuters poll of 547 large- and mid-sized companies, in which 251 firms responded, the manufacturers' index was seen inching up in March while the service-sector mood was believed likely to slip but remain at relatively high levels.
"Following growing interest in AI (artificial intelligence) and IoT (Internet of Things), we are receiving increasing inquiries from manufacturers about automation and efficiency," an electrical equipment maker wrote in the survey, in which companies respond on condition of anonymity.
Another electrical equipment maker wrote: "The U.S. car market is maintaining sound performance even though it shows some signs of declining."
The sentiment index for manufacturers stood at 27, unchanged from November after hitting a decade-high of 31 in October, according to the survey conducted Nov. 21 to Dec. 4.
The manufacturers' index was up two points compared with three months ago, on gains among industries such as electrical equipment, oil refinery/ceramics and steel/nonferrous metals. The index is expected to rise further to 28 in March.
The service-sector index rose to 34 from 31 in November, led by gains in retailers, an encouraging sign for private consumption that constitutes some 60 percent of the economy.
Compared with three months ago, the service-sector index rebounded to match a two-year high registered in September. The index is expected to fall to 31 in March.
The BOJ's last tankan showed big manufacturers were the most optimistic for the business outlook in a decade.
Japan's economy expanded for a seventh straight quarter in the July-September period led by solid external demand, with steady growth seen likely to continue in the coming year.
Policymakers hope a sustained economic recovery will boost wages and consumer spending, but analysts expect inflation to remain below the central bank's 2 percent target for some time.