The Bank of Japan's quarterly "tankan" report released on July 2 shows that business sentiment among large manufacturers in the April-June period as shown by the diffusion index (D.I.) rose three points from the previous quarters to minus 1 — an improvement for the first time in three quarters. Medium-size and small manufacturers added 1 point to reach minus 6.
Behind the improvement is the temporary easing of the yen's rise, falls in oil prices, brisk car sales and strong demand induced by the reconstruction from the 3/11 disasters. But the government and enterprises must guard against downside risks such as weakening of domestic demand, the European sovereign debt crisis and a slowdown in the Chinese economy.
The D.I. is determined by subtracting the percentage of firms with poor business sentiments from the percentage of firms with good business sentiments. The D.I. for carmakers rose 4 points to plus 32, mainly thanks to government subsidies for eco-friendly car purchases. Domestic car sales in June topped more than 500,000 units — an increase of 43.6 percent from a year before and a rise for nine consecutive months. The D.I. for electric and electronic machinery makers and that for the nonferrous metal sector rose 3 points to minus 14 and 22 points to plus 11, respectively.