The Bank of Japan's tankan survey of business sentiment in March, whose results were released Monday, shows that major manufacturers are cautious about their business prospects. Their diffusion index (DI) for March — the percentage of firms optimistic about their business outlook minus the percentage of firms pessimistic about their business outlook — was minus 4. This matches December's result and marks the second consecutive quarter of negative figures. Their DI for this coming June was minus 3, a slight improvement.

In contrast, the DI of major nonmanufacturing firms for March was plus 5, up one point over December, and that for June was plus 5, the same as in December. One factor behind this rather positive outlook is the brisk sales of smartphones.

The Japanese economy as a whole is mildly recovering thanks to demand driven by reconstruction efforts in areas hit by the 3/11 disasters and a slight weakening of the yen. But the tankan survey shows that factors such as the unstable political situation created by the government's plan to raise the consumption tax, fear of summer power shortages due to the shutdown of nuclear power plants, the sovereign debt crisis in Europe and rising oil prices amid tensions over Iran are keeping a lid on optimism among manufacturers.