Confidence takes a tumble in Japan

Business pessimism in Japan is spreading from manufacturers to the service sector, a survey showed yesterday, reflecting weak domestic demand and the impact of rising prices for raw materials.

Although global policy-makers have declared inflation a major threat, the Reuters tankan report highlights the dilemma they face in trying to combat rising prices without hammering growth.

Financial markets have scaled back expectations of aggressive central bank action to control inflation out of concern that the US economy in particular is too weak. Data this week showed US housing starts fell in May to a 17-year low.