If Shinzo Abe had really been looking to the “Tankan” survey as a definitive guide to whether Japan’s economy could withstand a fiscal squeeze, he could have found encouragement on almost every page.

The quarterly study conducted by the Bank of Japan, which surveys more than 10,500 companies of all sizes across the country in the month leading up to publication, showed that the headline measure of confidence among large and medium-sized enterprises was as its highest level since the final quarter of 2007, buoyed by exporters seeing a pick-up in external demand and by non-manufacturers enjoying a recovery in domestic consumer spending.

Cheeriest of all was the ceramics, stone and clay sector, where the so-called “diffusion index” – the percentage of respondents saying business conditions are good, minus those saying conditions are bad – was at a 21-year high in September.

Mr Abe’s public works spending spree – unleashing Y10tn of fiscal stimulus within weeks after taking office – has been “a boon to the cement industry”, noted Ryutaro Kono, chief economist at BNP Paribas.

The index for small companies with capital of less than Y100m ($1m) was still negative, at minus 4. But in this historically gloomy segment of Japan’s post-bubble economy the high watermark of confidence was zero, in the first quarter of 2007. And this time, too, the trajectory was upward, for manufacturers and non-manufacturers alike.

The survey also showed that large exporters are becoming more comfortable with budgeting on the basis of a weaker currency. Previous surveys suggested that they did not trust that the yen could hold on to its huge losses against every other G10 currency between November and April.

Now, the average of predicted exchange rates has fallen to Y94.45 to the US dollar over the fiscal year that began in April, from Y91.20 in June.

Not everything was rosy, however: companies rolled back their estimates of how much they would increase capital investment for the year, to an average of 5.1 per cent from 5.5 per cent in the last survey three months ago.

Elsewhere, though, there was good news in employment, with a widening spread between companies saying they have too many employees and those saying they have too few. That diffusion index sank from minus 1 to minus 5, the lowest level since the second quarter of 2008.

The gap between Japan’s real output and its potential output is shrinking, said Masamichi Adachi, senior economist at JPMorgan in Tokyo.

Companies spending more on hiring is “key in turning the vicious cycle of economic growth,” he said.

Copyright The Financial Times Limited 2018. All rights reserved.