According to the survey, the closely watched diffusion index of large manufacturers for March climbed to 12, up from 7 in December survey and thus marking fourth straight quarter of improvement in business confidence. The diffusion index is a method that economists use to calculate and define business confidence. It measures the variation of companies that, when asked about their business condition, response favourable against those who give a negative reply.

For the quarterly Tankan report released on the first day of April, the Bank of Japan surveyed 10,562 companies nationwide. In addition to companies in manufacturing and service sectors, 210 banks and financial institutions were also approached for the periodic survey that the central bank conducted between February 23 and March 31.

The result of the survey shows growing confidence among service sector industries as well as smaller companies who are dependent more on domestic consumer demand. As a result, the survey is being seen as further proof that the current economic recovery is going to be more sustainable than the short lived upturns in the recent past that were driven mostly by exports and eventually faded because of sluggish consumer demand back at home.

The latest survey shows that large non-manufacturing companies are catching up with the manufacturing sector as their diffusion index has jumped to 5 from 0 in December. This is also the first time in seven years that large non-manufacturers index rose above zero and the figure is also the highest diffusion index recorded in almost 12 years. The highest gain in confidence was marked in real estate that saw an increase of 13 followed by retailing, which jumped to 3 from December's mark of minus 9. The meaningful recovery in retailing is seen by economists as particularly welcoming as it suggests a healthy growth in personal consumption, which makes up nearly 60 percent of Japan's gross domestic products.

Diffusion index for large companies, on the other hand, remained unchanged at 6, while that for medium and small-scale businesses rose to 11 and 13 points respectively. A smaller drawback of the survey that analysts point to is that it was complied before the yen surged against the US dollar in recent days. A stronger yen hurts Japanese companies doing business overseas by reducing the value of their dollar-denominated profits and revenue in terms of yen. Big companies in the survey have forecast an average exchange rate of around 108.5 yen to a dollar in the current fiscal year ending in March 2005. The assumption was based largely on a level of around 110 yen to a dollar, the rate that yen was holding for quite some time until towards the end of last month. But yen in recent days has gained its value against US dollar and at present is trading at around 103-105 to a dollar. As a result, there is also concern among financial analysts that the gain might be hampered if dollar continues to remain weak.

But at the same time they do not think the process of recovery would come to a total halt.

Despite all encouraging signs reflected in the quarterly report of the Bank of Japan, the unemployment rate in February remained unchanged at 5 percent, largely due to a worsening job situation for men. Japan's seasonally adjusted unemployment rate in February stood unchanged from the previous month, as a fall in the jobless rate for women offset an increase in the rate for men. In December last year the unemployment rate fell to a 30-month low of 4.9 percent, rising again to 5 percent in January, indicating that the recent improvement in country's economy has yet to boost a major recovery in the job market.

According to February figure released at the end of March, the number of unemployed people in Japan fell by 190,000 from a year earlier to 3.3 million. But at the same time, the unemployment rate for men rose 0.2-percentage point from January and stood at 5.4 percent, while the rate for women fell 0.1 point to 4.5 percent. The most alarming trend still visible in the jobless rate is for that of young people aged between 15 and 24, where the rate for men recorded in February was 12 percent against 8 percent for women. The gap in unemployment rate of men and women is largely the result of an increase in the number of new jobs in the medical, welfare, services and telecommunications industries, each of which employs large number of women.

In a separate health, labour and welfare ministry report released at the same time the unemployment figure announced shows the ratio of job seekers remaining unchanged from the January figure of 0.77. It means 77 jobs were available in February for every 100 job seekers. The number of job offers remained flat from January, and that of job seekers rose 0.7 percent. But compared to the figures from last year, the number of new job offers rose thirteen percent from a year earlier.

The mixed results seen in business confidence and job market provide further indications that the Japanese economy is now firmly on way to recovery. The optimism has also been reflected in the stock market where Nikkei average gained 9.5 percent so far this year. As a result, to sustain the gradually returning confidence of Japanese consumers, focusing on job market, particularly that for the young people, is increasingly becoming an urgent responsibility for the government.