Sentiment among Japanese manufacturers stabilised in January to the least pessimistic in more than a year from the impact of COVID-19, but service firms grew gloomier just as new lockdowns hit most of the population, the Reuters Tankan poll found. Manufacturers in the world’s third-biggest economy were the least pessimistic since July 2019, though the outlook, especially for services, is clouded by a pandemic state of emergency covering Tokyo and other population centres through Feb. 7. Driving the improvement for manufacturers were upbeat views in the chemical, metal products and electric machinery sub-sectors, according to the monthly Reuters poll, which tracks the Bank of Japan’s closely watched tankan quarterly survey. “The car market is rapidly recovering, especially in China, and demand for electronic parts is growing,” a manager at a electric machinery maker wrote in the survey of 482 large and midsize nonfinancial firms, in which 253 responded anonymously. The Reuters Tankan sentiment index for manufacturers rose to minus 1 from minus 9 in the previous month, while the service-sector index fell to minus 11 from minus 4 in December, according to the Dec. 24-Jan. 13 survey. 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 pessimists outnumber optimists. A manager at a chemical producer said business has been recovering since September in line with a recovery in broader market conditions. Japan’s economy surged an annualised 22.9% in the third quarter, rebounding from its deepest postwar slump in the July-September period when the pandemic crushed economic activity. The government had already committed to spending $3 trillion to bolster the economy before Prime Minister Yoshihide Suga this month announced a second state of emergency, which now covers Tokyo, Osaka, Kyoto and other areas accounting for 55% of Japan’s population. The Tankan survey showed overall sentiment for the manufacturing sector was poised to fall again, with business confidence expected to edge down to minus 2 in April, despite an expected increase in the mood among chemical firms. Sentiment in the service industry was forecast to improve slightly to minus 9, with companies highlighting the COVID-19 resurgence as a major headwind. “Customer numbers have declined significantly in line with the spread of coronavirus infections,” said a manager at a retailer.