The service sector sentiment of Japan jumped at a record speed in June as businesses re-opened following the coronavirus or COVID-19 lockdown measures got lifted in late May, data showed on Wednesday, offering hope that the economy's slump has bottomed out.

But a recent rise in new infections in Tokyo is clouding the outlook, leaving few analysts predicting a V-shaped recovery. "Japan's economy will hopefully pick up as business re-opens and the effect of government stimulus measures appears," said Takeshi Okuwaki, an economist at Dai-ichi Life Research Institute.

"But it will take some time for economic activity to return to pre-pandemic levels. The outlook remains severe," he said. A government survey of workers such as taxi drivers, hotel workers and restaurant staff - called "economy watchers" for their proximity to consumer and retail trends - showed their confidence about current economic conditions jumped a record 23.3 points to 38.8 in June from the previous month.

Service Sector Jumps in Japan

Picture for representation
Japan's Prime Minister Abe stands in front of Japan's national flag. Reuters

The index improved for the second straight month after hitting a record low of 7.9 points in April. But it remained well below the boom-or-bust threshold of 50, indicating more respondents think conditions are worsening rather than improving. The outlook index, which indicates the level of confidence in future conditions, rose 7.5 points to 44.0 in June from May.

The data comes ahead of the Bank of Japan's rate review next week, when it is expected to keep policy steady and stick to its forecast of a moderate recovery later this year. The health crisis is pushing Japan into deep recession, prompting the government to compile a massive stimulus package and the BOJ to ease policy in March and April. Japan has reported over 20,000 COVID-19 cases and around 980 deaths from the respiratory disease, according to public broadcaster NHK.

The deadly virus outbreak has created a major stir around the world in recent times infecting more than 11.8 million people globally and claiming the lives of over 544,000 people worldwide in more than 170 countries.

(With agency inputs)