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Business conditions among large Japanese manufacturers improved over the first three months of the year, according to the latest Tankan survey from the Bank of Japan.

The closely-watched survey also pointed to improved conditions among medium- and small-sized enterprises, suggesting stable growth overall for Japanese industry.

The headline reading for the manufacturing sector rose to 12 in the March survey, up from 10 in the December quarter, but slightly below economists’ expectations.

The general-purpose machinery sector saw the largest improvement, rising 11 points to 25, while petroleum products and coal producers saw the biggest drop, of 16 points to 6.

The reading for the non-manufacturing sector improved by 2 points to 20 in the March survey. Across all industries, conditions also improved by 2 points to 16.

The headline June outlook for the manufacturing sector, of 11, was up from the March forecast of 8 (provided in the December survey), but would represent a small step back from the the actual March result.

Marcel Thieliant at Capital Economics said:

While today’s Tankan survey showed that business conditions for large manufacturers did not improve as much as most had anticipated, the survey suggests that growth will remain strong for now. What’s more, the continued increase in capacity usage is welcome news for the Bank of Japan.

He continued:

The quarterly change in the Tankan all industry index is a good guide to GDP growth. On past form, the 2-point rise last quarter is consistent with output expanding by around 2% per annum.

Yuichiro Nagai and Yukito Funakubo at Barclays said:

Sentiment appears to have improved with global economic conditions and stability in the USDJPY over the latest survey period (27 February to 31 March in 2017), which had a collection reference date (by when roughly 70% of the responses are typically collected) of 13 March.

The yen was sitting 0.1 per cent stronger on Monday morning at ¥‎111.29 per dollar, having gained 0.5 per cent.

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