By Kantaro Komiya
TOKYO (Reuters) - Japan's factory sentiment likely weakened in January-March to the lowest level since late 2020, a Reuters poll of economists showed on Friday, in a fresh sign of soft overseas demand hitting the world's third-largest economy.
While the service-sector mood probably recovered to pre-pandemic levels with eased COVID-19 concerns, pessimism remained in export-driven industries hit by decelerating global growth, elevated inflation and worries over American and European banks.
The Bank of Japan's (BOJ) closely-followed "tankan" business survey will likely show the headline big manufacturers' mood index down to 3 in March from 7 in December, according to 14 economists surveyed by Reuters.
The reading would be the lowest since December 2020's minus 10 and would mark a fifth straight quarterly decrease.
"On top of rising import costs that are squeezing profits, the materials sector is incurring inventory write-downs due to depressed commodity markets, and the processing sector is facing shrinking demand because of a global economic slowdown," said economist Shumpei Fujita at Mitsubishi UFJ (NYSE:MUFG) Research and Consulting.
By contrast, the big non-manufacturers' confidence index likely rose for a fourth quarter to 20, the highest since December 2019, from 19, the poll showed, with analysts citing eased border controls and domestic COVID-19 measures.
On the outlook, large manufacturers would see a slight improvement in their confidence three months ahead, while service-sector firms' sentiment would probably deteriorate.
The tankan will also show big firms plan to raise capital expenditure by 4.9% in the next fiscal year starting April, according to the poll, following a 19.2% increase projected for the current fiscal year in the December survey.
Although the growth rate appears lower, analysts said companies' confidence for investment remains historically strong.
The BOJ will release the latest tankan survey results on April 3 at 8:50 a.m. local time (April 2 at 2350 GMT).
Separate industrial output data due on March 31 at 8:50 a.m. (March 30, 2350 GMT) will likely show a 2.7% month-on-month increase in February after a revised 5.3% fall in January.
The poll also found Tokyo's core consumer inflation rising 3.1% in March, slower than a 3.3% growth in the previous month, thanks to government-funded energy subsidies.