Japan's economy shakes off worries

Keizo Obuchi (with fish) toured the country with the message that the economy is on the mend

Japan's stock markets have shaken off worries over the political and economic fallout after Prime Minister Keizo Obuchi suffered a stroke.

Analysts say that economic policy is pretty much on auto-pilot after parliament recently passed a massive budget designed to boost the country's troubled economy.

Foreign investment is being driven by corporate restructuring ... and [Obuchi's] health is unlikely to affect the economic situation in the near term.

James Malcolm, JP Morgan

Instead economists and investors focused on upbeat results from Japan's keenly watched Tankan survey.

For the fifth time in a row the survey, compiled by the central bank, suggests that business confidence at major manufacturing firms is improving.

The result was in line with market expectations, but there are worries that the trend could soon reverse.

Noriko Hama, of the Mitsubishi Research Institute, said: "This is a Tankan which is probably at its highest point."

Dampening the Yen

Responding to the good economic news, investors rushed into the yen, driving up the currency's value and potentially making life difficult for Japanese investors.

However, the government soon began to pump yen into the market to drive down the price and safeguard economic recovery.

Tokyo's key stockmarket index, the Nikkei, closed at 20,726 after gaining nearly 390 points.

Recovery

The country is struggling to emerge from its worst economic slump in 50 years.

Following a drawn-out recession, Japan had seen its economy grow for the first six months of 1999. But hopes for a recovery were quickly dashed when gross domestic product shrank again in the second half of the year.