Japan's economic recovery looked fragile despite Bank of Japan's big stimulus as business confidence among major Japanese manufacturers remained low in the July-September 2016 quarter with service sector sentiment at its lowest in nearly two years, BoJ's Tankan survey showed.
But the Japanese market has improved, signalling that consumer sentiment had not worsened, underscoring a fragile economic recovery and businesses have yen for investment.
BoJ and the Japanese government is now pinning hope on firms' proposed capital spending plans for the current fiscal year, the tankan survey showed. The effect of Bank of Japan's (BoJ) massive infusion of liquidity into the system remained doubtful as the reaction has so far been mixed.
BoJ's business sentiment survey, known as the Tankan, revealed the mood among big manufacturers was unchanged during the third quarter.
The headline index of big manufacturers' sentiment stood at +6 in September, unchanged from the level three months ago and roughly in line with a median market forecast of +7, the quarterly survey showed.
Sectorwise, motor vehicles rebounded as the manufacturing hub of Kumamoto saw a revival as the effects of the earthquakes that hit the region earlier this year faded. However, production of general-purpose machinery, production machinery, shipbuilding and heavy machinery sank, reflecting weak overseas demand for capital goods.
Big non-manufacturers' sentiment slipped to +18 from +19 three months ago, falling for three straight quarters and hitting the lowest level since December 2014, as spending by foreign tourists slowed down in the face of a strong yen.
Despite the yen's gains, however, Japanese firms' appetite for capital spending remained somewhat resilient.
Big firms plan to raise capital spending by 6.3 per cent this fiscal year to March from year-before levels, largely unchanged from three months ago.
Big manufacturers based their business plans on the assumption the dollar would average 107.92 yen in the current fiscal year, down from 111.41 yen forecast three months ago.
The survey results, released before the market opened on Monday, pulled down the yen to 101.57 per dollar from 101.41 previously, while the Nikkei benchmark equity index was nearly 1 per cent higher in early trade.