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An employee of Daikin Industries Ltd works the production line of outdoor air conditioning units at the company’s Kusatsu factory in Shiga prefecture, western Japan, April 5, 2015. — Reuters picAn employee of Daikin Industries Ltd works the production line of outdoor air conditioning units at the company’s Kusatsu factory in Shiga prefecture, western Japan, April 5, 2015. — Reuters picTOKYO, Aug 21 — Confidence at Japanese manufacturers rose to its highest level in a decade in August led by materials producers, a Reuters poll showed, a further sign of broadening recovery in the economy.

The Reuters’ monthly poll — which tracks the Bank of Japan’s closely watched quarterly tankan — found the service-sector mood fell but still remained at a relatively high level, underscoring firmness in domestic demand which drove an expansion in the second quarter.

Business sentiment was likely to sag slightly over the next three months, indicating a potential pullback from the hefty 4 per cent annualised growth in the April-June quarter driven by private consumption and capital expenditure.

The sentiment index for manufacturers rose one point to 27 in August in the poll of 548 large- and mid-sized companies, conducted Aug. 1-16, in which 265 firms responded.

It was the best reading since August 2007, just before the last global financial crisis.

“The global economy, centring on the United States and China, is on a firm footing,” a manager of a textile maker wrote in the survey.

Reflecting some wariness on the outlook, the manufacturers’ index was seen slipping to 26 in November.

“While China’s car market remains brisk, North American markets appear to have reached the peak. As such, we cannot be overly optimistic,” wrote a manager at a car manufacturer.

The Reuters Tankan service-sector index slipped to 29 in August from the previous month’s two-year high of 33, dragged down by retailers, information and communications firms.

The index was expected to drop further to 25 in November.

Cool and rainy weather may dampen consumer spending in August, which would be worrying as private consumption constitutes about 60 per cent of the economy and was a primary driver of the second-quarter’s robust expansion.

The Reuters Tankan indexes are calculated by subtracting the per centage of pessimistic respondents from optimistic ones. A negative figure means pessimists outnumber optimists.

The BOJ’s last tankan out July 3 showed big manufacturers’ business confidence hit its highest level in more than three years in the June quarter. — Reuters 

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