The bullish survey underscored how Japan's prospects have been improving on the back of strong exports, with investments linked to the Tokyo 2020 Olympics also giving the economy a shot in the arm. The Bank of Japan's Tankan report, a quarterly survey of more than 10,000 companies, showed a reading of 25 among major manufacturers in its December survey, the highest since its December 2006 poll.
The mood among major manufacturers has now risen for a fifth straight quarter. The report, seen as the broadest indicator of Japan Inc's health, marks the difference between the percentage of firms that are upbeat and those that see conditions as unfavourable.
Buoyed by a favourable outlook, the firms say they plan on average to boost capital spending by 10.2 percent year-on-year, according to the survey. "The strong reading reflects major manufacturers' sound performance, thanks to brisk demand in the global economy," Tsuyoshi Ueno, economist at NLI Research Institute, told AFP.
However, he also noted that firms "remain cautious about various risks including geopolitical concerns over Northh Korea and the Middle East" The index for non-manufacturers came in at 23, unchanged from the previous survey in October. This was the highest level since the final quarter of 2015.
- 'Growth to continue' -
The report is a boost for Prime Minister Shinzo Abe, who swept to power in late 2012 on a pledge to cement a lasting recovery in the once booming economy with a growth plan dubbed Abenomics. The scheme - a mix of aggressive monetary easing and huge government spending along with reforms to the economy - fattened corporate profits and sent the stock market higher.
But it has failed in its goal of shrugging off the deflation that has plagued Japan for years and held back growth. Japan's latest inflation rate of 0.8 percent is still nowhere near the Bank of Japan's 2.0-percent target, despite years of record monetary easing.
However, the economy expanded by 0.6 percent in the July-September period, posting its longest string of gains in more than two decades. "Even though the pace of improvement (in business confidence) is slowing down, economic growth is likely to continue," said Hideo Kumano, chief economist at Dai-ichi Life Research Institute.
A major reason for the improvement this time is that the raw materials industry has succeeded in raising prices thanks to brisk global demand, he noted. "But people in this sector don't believe they can raise prices again soon, so their sentiment for the future is not very good," he added.
Among other positive factors are strong capital investment plans that are "spreading to various sectors" including smaller manufacturers and non-manufacturers, he said. Looking further ahead, Japan will face a planned sales tax hike in 2019.
Abe has vowed to press on with the hike, even after the economy was pushed into a brief recession following a 2014 tax rise. But Kumano said it was too early for companies to pay close attention to the impact of the planned move.