The business index for large manufacturers improved for the first time in two quarters, rising by 1 point to plus 14 for the Oct.-Dec. period, according to the quarterly Tankan survey by the Bank of Japan.
A positive number indicates that more companies are optimistic about business conditions than those pessimistic.
The growth was attributed to a recovery in automotive production, previously impacted by certification issues, and increased demand for semiconductor manufacturing equipment driven by artificial intelligence advancements.
Despite the positive developments, large non-manufacturers experienced a slight decline in sentiment, with the business index slipping to plus 33 from plus 34 in the previous quarter, marking the first drop in two quarters.
Retail sentiment dropped significantly, reflecting weaker demand for fall and winter clothing following extended late-summer weather conditions.
Accommodation and food services also reported a decline in sentiment, despite strong inbound tourism, due to rising labor costs and material prices.
Looking ahead, the index for large manufacturers is expected to fall by 1 point to plus 13 in the next three months, reflecting cautious sentiment amid concerns about slowing overseas demand and potential policy changes under U.S. President-elect Donald Trump.
