Japanese business confidence has improved for the fourth quarter in a row as the world's number two economy slowly recovers from its worst slump in decades, the Bank of Japan said today.
Sentiment among major manufacturers rose to its highest level since September 2008, with a reading of -14 in March from a revised -25 in December, according to the bank's Tankan survey of over 11,000 firms.
The closely watched index, which measures the percentage of firms that think business conditions are good minus those that believe they are bad, hit a record low of -58 in March last year.
Analysts pointed to the export-led nature of the recovery as being key to the improving confidence level. Sentiment among big non-manufacturers also improved to -14 in the latest survey, from -21 in December.
However, the negative reading signals that sentiment among medium and small-sized companies, especially among non-manufacturers, is still weak.
While most firms are still cautious about the economy, the survey showed companies expect a bounce in profits and plan to ease spending cuts on factories and equipment, boosting Japan's prospects of sustainable growth.
Large manufacturers plan to cut capital investment by 0.9% in the fiscal year that started today, the Bank of Japan reported, compared to a revised 30% slash in the previous year.
The major manufacturers, meanwhile, forecast a 49.3% jump in pre-tax earnings for the new financial year, after a revised 21.5% plunge last year.
The Tankan survey is a key indicator guiding the Bank of Japan's formulation of monetary policy. The bank has held its main interest rate at 0.1% since December 2008, the depths of the global financial crisis.
But the corporate world's more upbeat assessment comes amid signs that Japan's recovery from a crushing year-long recession remains fragile, owing to enduring deflation and low domestic demand.
The economy grew at a slower rate than previously thought in the fourth quarter of 2009, at just 0.9%, according to a government revision in March. Japan's factory output also fell for the first time in 12 months in February while unemployment remained unchanged at 4.9%.
