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Last Updated: Monday, 3 July 2006, 06:06 GMT 07:06 UK
Japan's firms grow in confidence
Toyota showroom in Tokyo
Japanese manufacturers like Toyota are growing and investing
Business confidence in Japan has improved over the past three months, according to a central bank report.

Large firms responding to the Bank of Japan's quarterly Tankan survey said they were feeling even happier about the three months to September.

They reported plans to raise spending on new factories and equipment by 11.6% this year, ahead of market forecasts.

The survey has reinforced predictions that the bank will lift interest rates from zero at next week's meeting.

'Long-lasting' recovery

The Tankan survey showed that confidence among the 9,964 surveyed companies had improved, despite the poor performance of the stock market during June, when the study was conducted.

"A rate hike this month is almost a done deal," said Tsutomu Kawasaki, a fund manager at the Pension Fund Association.

"Japan is heading for a long-lasting economic recovery."

The bank's next rate-setting meeting starts on 13 July.

A rate rise would mark an end to the Bank of Japan's long-held zero- rate policy - introduced to stimulate consumer spending and business investment in an economy plagued by deflation, or falling prices.

Now central bankers are poised to lift rates for the first time in six years in a bid to keep a check on the level of consumer spending and corporate investment, which could lead to the economy overheating if they are allowed to rise too fast.

The improvement in business sentiment was demonstrated by the Bank of Japan's Tankan confidence index for large manufacturers, which rose to 21 during the April-June quarter, up from 20 in the January-March period.

A positive number means optimistic companies outnumber the pessimists.

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