The Bank of Japan's quarterly survey of business sentiment, better known as the Tankan, is expected to show further improvement, backed by export-led economic recovery, economists said. The central bank is scheduled to release the result of the this month's Tankan survey on Thursday.
Solid gains in corporate profits are improving the prospects for salaries and stimulating consumer spending, which in turn should support a sustained improvement in business sentiment, the econo-mists said.
The headline sentiment index for large manufacturers, the driving force behind the current upturn, is forecast on average to come in at plus 10 in the latest survey, up from plus 7 in the December Tankan.
In the December Tankan, surveyed firms had forecast that the index would come in at plus 6 in this month's survey.
"The surveyed firms had predicted in the December survey a deterioration in business sentiment towards the March survey due to caution over the appreciation of the yen," said Ryutaro Kono, chief economist at BNP Paribas.
"But thanks to the sustained growth in the global economy and a peak in the appreciation of the yen in February, it seems that firms are getting more confident about the sustainability of the ongoing positive developments," Kono said.
The yen reached a three-year high of ?105.16 to the dollar early last month but has since lost some ground, weakening to ?112 earlier this month.
The economists also predicted a modest improvement in confidence among big non-manufacturers due to emerging signs of a recovery in consumer spending and optimism that Japan is crawling out of prolonged deflation.
The trade ministry said on Friday that Japan's total sales at both wholesale and retail levels rose 1.1 percent last month from a year earlier, marking a third consecutive monthly increase.
As for the faint sign of easing deflationary pressures, year-on-year declines in Japan's nationwide land prices narrowed at the start of the year for the first time in six years.
For large non-manufacturers, the headline Tankan sentiment index is forecast to come in at plus 3 on average in this month's survey, up from zero in the December Tankan.
"Reflecting improving labor market conditions, which are helping consumer spending, business sentiment at non-manufacturers is expected to show a modest improvement," said Tatsushi Shikano, senior economist at UFJ Tsubasa Research Institute.
In the December Tankan, surveyed non-manufacturers had forecast that the index would climb to plus 4 this month.
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