TOKYO Confidence among Japan's manufacturers climbed to the highest since the global financial crisis a decade ago, a Reuters survey showed, while March trade data showed 12 percent growth in exports - the biggest gain in over two years.
Japan's economy has shown more signs of life in recent months thanks to pick-up in exports and factory output.
But, stubbornly weak private consumption has put a drag on growth, underscoring the challenge Prime Minister Shinzo Abe faces in pulling the world's third largest economy out of two decades of stagnation.
The monthly Reuters Tankan poll - which tracks the Bank of Japan's key tankan - showed sentiment at manufacturers rose for an eighth month in April to its highest since 2007.
The sentiment index for manufacturers rose one point to 26 in the poll of 529 large and midsize firms, conducted between April 4-17 in which 261 responded.
"Rising sentiment despite the dollar's fall below 110 yen during the survey period underscores that underlying conditions are firm," said Yutaka Miura, a senior technical analyst at Mizuho Securities.
But Miura noted the yen's strength - it gained 3.5 percent against the dollar over the past month - was making manufacturers more cautious going forward as exports were becoming less competitive.
Although the trade data showed Japan's surplus with the United States had narrowed, concerns about President Donald Trump's pledges to adopt more protectionist policies have also clouded the outlook for big Japanese exporters.
And the Reuters survey showed the manufacturers' sentiment index was seen slipping to 20 in July.
"Uncertainty is mounting overseas, with emerging markets and resource-producing economies undershooting, while protectionism is on the rise - as seen in Britain's vote to exit the European Union and the results of the U.S. presidential election," a manager at a machinery maker wrote in the survey.
The government on Thursday also raised its assessment of business sentiment, the first upgrade in four months, while sticking to its overall assessment that the economy is recovering gradually though pockets of weakness remain.
Yasukawa Electric Corp said on Thursday its group operating profit fell 17.2 percent in the business year to March to 30.4 billion yen ($278.80 million), though the leading industrial-robot maker expects it to rebound 31.5 percent this fiscal year.
That, however, is based on an estimate of the dollar at 110 yen on average, so a further yen rise would erode profits.
Still, the export growth in March easily beat market forecasts, led by increased shipments of car parts and steel, and the benefits were gradually spreading to domestic demand.
The Reuters Tankan showed confidence at service-sector firms hitting a three-month high at plus 28, up two points in April from March, led by wholesalers.
As with manufacturing, however, the outlook was less buoyant, with the index seen slipping back to 26 in the coming three months.
On Tuesday, Vice President Mike Pence, attended an inaugural U.S.-Japan economic dialogue, put Tokyo on notice that Washington wants results "in the near future" from talks it hopes will open Japan's markets to U.S. goods.
($1 = 109.0400 yen)
(Reporting by Tetsushi Kajimoto; additional reporting by Izumi Nakagawa, Yoshiyuki Osada and Minami Funakoshi; Editing by Simon Cameron-Moore)