The Bank of Japan's latest Tankan quarterly survey gives a mixed picture of business confidence. Large manufacturers appear more optimistic about the course of the Japanese economy in the months ahead, as the negative impact from the three-percentage-point hike in the consumption tax hike in April seems limited. Manufacturers plan sharp increases in capital investments for this year.

However, the survey and other economic data point to some worrisome signs that growth could be hampered. The government and the central bank need to keep close tabs on the economy and take flexible action to prevent the uptrend from being derailed.

The Tankan survey for June showed confidence among large firms — in both manufacturing and nonmanufacturing sectors — declined for the first time in six quarters, reflecting the fallback in demand that had spiked ahead of the April tax hike. But the margin of the decline was smaller than was forecast in the previous survey in March, and large manufacturers expect business conditions three months ahead to improve, mirroring the view that the fall in demand after the tax hike would only be temporary.