The key gauge for business sentiment among major companies swung into the plus column in the October-December period for the first time in 11 quarters, thanks to improvement in the domestic economy, the Finance Ministry said Thursday.
The business sentiment index for companies capitalized at 1 billion yen or more rose to 5.6 from minus 5.2 in the July-September period, signaling that domestic demand has finally gathered momentum, the ministry said.
The result was stronger than the forecast of 2.5 by the companies in the previous survey.
The index for manufacturers jumped to 10.2 from minus 1.1, turning into positive territory for the first time in 11 quarters.
The index for nonmanufacturers climbed to 2.9 from minus 7.5, turning around for the first time in 12 quarters.
The index is compiled by subtracting the percentage of firms reporting deteriorating business confidence from those reporting an improvement.
A ministry official said 25.5 percent of the companies responded that they saw improvement in domestic economic factors, up from 14.0 percent in the previous poll, while 9.3 percent cited improvement in overseas economies, little changed from 9.0 percent.
Private-sector economists took the results as good news, saying they show that domestic demand appears to have finally picked up in the world's second-largest economy.
However, the economists cautioned that developments in the economy need to be monitored to see if the trend will continue "in the long run."
Tom Kirchmaier, a lecturer in international management at the London School of Economics and Political Science, said Japan faces two major obstacles before it can realize a full recovery, namely weakness in the dollar and unfinished corporate restructuring.
Looking ahead, the survey projects that the confidence index for the leading companies will rise to 8.3 in the January-March quarter.