Business confidence at major manufacturers rose to a six-year high, according to a quarterly central bank survey released on Dec. 16, amid optimism over Prime Minister Shinzo Abe's economic recovery program.
The Bank of Japan's tankan business confidence index rose to 16 for large manufacturers from 12 in September, and the best showing since 2007.
Abe has made monetary easing, public works projects and structural reforms the key planks of his three-pronged economic plan, dubbed “Abenomics.”
The yen has fallen dramatically after he took office a year ago, which helps Japan's automobile and electronics exporters by increasing overseas income when repatriated.
The bank surveyed 10,509 companies, which responded between Nov. 14 to Dec. 13.
But economists say Japan still faces major economic challenges, including a bulging public debt and shrinking population.
Large companies said they expect to increase capital spending by 4.6 percent in the fiscal year through March 2014. That was slightly lower than expected, said Hiromichi Nishi, assistant general manager at SMBC Nikko Securities.
“So the effect is mixed and subdued,” he said.
The sentiment index among non-manufacturing companies, including construction and services, jumped to 20 from 14, according to the survey.
The tankan showed that they are expecting the dollar to trade at mid-90 yen levels, but it has been rising to about 100 yen lately, meaning earnings results could turn out better than expected, Nishi said.
Still, analysts say Japan needs drastic structural reforms to keep solid growth going.
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