A Tankan quarterly survey on business sentiment for September, which the Bank of Japan (BOJ) has just released, highlights the sluggishness of Japan's economy as the yen has appreciated.
Consumer spending and corporate capital investments remain weak and there has been no driving force behind Japan's economy.
The value of the yen has risen by nearly 20 yen against the dollar since the beginning of the year when one dollar was around 120 yen, adversely affecting the profits of businesses dependent on exports.
The negative effects of special factors such as the shock caused by Britain's decision to leave the European Union on the world economy and the April Kumamoto earthquakes have weakened. Still, the diffusion index among major manufacturers remained at the same level as in the previous June survey although market players had expected that these firms' business sentiment would improve.
The yen's appreciation is feared to further discourage businesses from investing in plants and equipment.
The report also demonstrates that business sentiment among major non-manufacturers has been worsening.
Domestic consumption remains sluggish and consumption by foreign visitors has decreased due to the yen's appreciation. Spending by Chinese visitors, whose massive shopping spree had contributed greatly to consumer spending, fell 22.9 percent per visitor over the April-June period from a year earlier due to such factors as the yen's surge.
The index among major manufacturers for the economic outlook has leveled out although high expectations are placed for economic stimulus measures worth about 28 trillion yen, which the government approved this past August.
The BOJ, which has drastically changed the framework for its monetary policy, is poised to make cautious judgments on whether to expand its negative interest policy. As such, market players' hopes for further relaxation of the central bank's monetary grip have declined.
As there are limits to what the government and the BOJ can do to prop up the economy, there are fears that Japan's economy, which is currently leveling out, could enter a deceleration phase if the yen further appreciates or if there are other negative factors.