TOKYO • Confidence among Japan's big manufacturers has improved to the highest level in a decade, underscoring Prime Minister Shinzo Abe's run of success on the economy as he heads into an election later this month.
Sentiment among large manufacturers rose to 22 from 17 three months ago, the highest level since September 2007, according to the quarterly Tankan survey released by the Bank of Japan (BOJ) yesterday.
The outlook among large manufacturers rose to 19 from 15 in June. The BOJ surveyed 10,687 companies from Aug 29 to last Friday.
A weak yen and a stronger global economy have fuelled record profits in Japan, even as trade tensions and North Korea's nuclear programme have clouded the outlook.
While Mr Abe's Liberal Democratic Party is expected to win a parliamentary election set for Oct 22, the margin will be important to his quest for constitutional revision.
The longest economic expansion in a decade has raised sentiment, but many households are still waiting for companies to turn those profits into significant pay increases.
"Manufacturing is up this time... due to the strong export figures through the summer," said Nomura Securities senior economist Masaki Kuwahara. "But non-manufacturing is flat, and investment plans from large companies look down. So while exports are strong, domestic demand is subdued."
A surprisingly sharp and broad-based improvement in business sentiment in the BOJ's third-quarter Tankan survey suggests the economic expansion is gaining staying power, Bloomberg Intelligence economist Yuki Masujima wrote.
Stronger domestic demand, supported by public investment, is lifting the mood among smaller companies, which employ most of Japan's workforce, Mr Masujima wrote.
Some slack in capital expenditure plans is a concern but could indicate that firms are directing more resources towards higher pay to attract workers in a tighter job market, he said.
Large manufacturers forecast the yen will trade at 109.29 per US dollar for the fiscal year ending in March next year. Large companies across all industries say they plan to raise fixed investment by 7.7 per cent in the year through March 2018.