A key survey of Japanese business confidence is expected to reinforce the upbeat outlook for the world's number two economy, with profits rising and share prices at a five-year high.
The Bank of Japan's (BoJ) quarterly Tankan survey due today is tipped to show a fourth straight improvement as the economy snaps out of its deflation doldrums.
The survey, the first to be published since the central bank last month dropped its extraordinary deflation-fighting monetary policy, could have a key bearing on when the BoJ starts raising zero interest rates, analysts said.
The headline index for large manufacturers is forecast at 23, up from 21 in the previous survey last December and the highest since it hit 26 in September 2004, according to consensus market forecasts.
A positive reading means that confident firms outweigh pessimistic ones.
"We've seen six straight months of industrial production expansion, a very solid turnaround in exports, stronger global growth than a lot of people expected and the domestic economy finally coming back on track in a very solid way," said Stefan Worrall, economist at Credit Suisse First Boston.
"All these things together, it's very hard to expect Japan Inc's optimism to wane," added Worrall, who expects a bigger rise than average to 24 points.
Data this week showed that Japan's industrial output snapped its six-month winning streak in February when it fell 1.7 percent from the previous month, but analysts said the overall trend still appears to be positive.
Japan's unemployment rate meanwhile fell to a seven-year low of 4.1 percent in February from 4.5 percent in January as companies stepped up hiring.
Many companies have signalled growing confidence by upgrading their profit outlooks for the fiscal year just ending and capital spending is expected to increase further, a key driver of the economic recovery.
"We continue to favor our most bullish [positive] scenario for the economic outlook and we expect continued improvements in Tankan headline readings in and after June," said Morgan Stanley economist Takehiro Sato.
After plenty of false dawns, investors are now confident that the world's second-largest economy is finally on a solid road to recovery after a slump stretching back over a decade since the asset bubble burst.
A slight improvement is also expected among large non-manufacturers as well as at smaller companies, which employ most of the country's workforce.
"We will see a further improvement in the small- and mid-sized companies," said Martin Schulz, an economist at the Fujitsu Research Institute.
"For them credit conditions have been improving almost constantly, plus their investments have been improving over the past year. This is very positive for the economy," he said.
There are some clouds on the horizon, however, such as high energy costs and the possibility that the dollar might decline against the yen in future.
Companies are also unsure exactly what the outlook is for monetary policy after the Bank of Japan recently moved to end its five-year policy of flooding the financial system with excess funds, known as "quantitative easing."
"Obviously there are some risk factors with the end to quantitative easing and whether oil will start affecting global growth but the picture is pretty rosy for this year," Worrall said.
A strong Tankan report, which surveys more than 10,000 companies, will likely stoke speculation about an early hike in interest rates.
"We think expectations of higher interest rates are far more likely to strengthen than to retreat significantly," Sato said.
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