By Tetsushi Kajimoto
TOKYO (Reuters) - Japanese business morale held steady in May, but manufacturers and service-sector firms complained that inflationary pressures driven by the weak yen were squeezing profit margins, a Reuters monthly survey showed.
The latest poll came about a week after gross domestic product (GDP) data showed Japan's economy contracted 2% on an annualised basis in the first quarter.
The main GDP components - private consumption, which makes up more than half the economy, capital expenditures and exports - weakened sharply due to soft demand at home and abroad, leaving Japan's economy with no driver of growth last quarter.
"China's economic slowdown has caused orders we receive to decline," a manager of a chemicals firm wrote in the survey.
"On top of that, the weak yen drove up the prices of raw materials such as plastic resin, while labour costs and electricity bills increased, all of which squeeze our profits."
A manager at a machinery maker said: "Domestic orders lacked momentum. Various cost increases through the weak yen and higher labour costs seem to make (our clients) hesitant to boost capital expenditure."
The Reuters Tankan survey, designed to closely track the Bank of Japan (BOJ), found Japanese manufacturers' confidence at plus 9, unchanged from the previous month. It is expected to improve slightly over the coming three months.
Non-manufacturers remained more confident, with their morale reading seen inching up to plus 26 from 25 in April, but it is expected to worsen by three points in August, it showed.
In the Reuters poll of 493 large non-financial companies, 229 firms responded on condition of anonymity during the survey period from May 8-17.
The Reuters Tankan indexes are calculated by subtracting the percentage of pessimistic respondents from optimistic ones. A negative figure means pessimists outnumber optimists.