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A Bank of Japan quarterly report, due out Oct. 1, is expected to show an improvement in business sentiment in the country from its tumble due to the coronavirus pandemic earlier this year, economists said.

Sentiment may have recovered from the worst of its downturn but remains far from pre-pandemic levels, they said.

The central bank’s September tankan survey is likely to see the diffusion index on large manufacturers’ sentiment rise to minus 24, an improvement of 10 points from an 11-year low marked in the previous June report.

The reading was based on the average of forecasts from 15 private research institutes. The index is calculated by subtracting the percentage of firms reporting bad business conditions from that of those seeing good conditions.

The index on large nonmanufacturers’ sentiment is expected to rise by 8 points to minus 9, according to the average of the forecasts.

“The improvement is backed by a recovery in demand” amid the reopening of the economy after the lifting of coronavirus restrictions in Japan and abroad, Meiji Yasuda Research Institute Inc. said.

But economists are not optimistic about the outlook. The dominant view is that the pace of recovery in sentiment will slow due to concerns about a possible surge in coronavirus cases.

“Corporate managers are becoming increasingly cautious about investment aimed at boosting production capacity” due to an uncertain outlook for earnings and demand, Mitsubishi UFJ Morgan Stanley Securities Co. said.

Many large manufacturers are expected to cut their capital spending plans, a move that could affect business conditions and employment at smaller companies, economists said.

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