video transcript

Japanese business sentiment improved over the last three months, recovering from the nation's post-earthquake shock. According to Bank of Japan poll data released Monday (October 3), large Japanese manufacturers also expect business conditions to improve further towards the end of the year. The central bank's quarterly Tankan index for big manufacturers' improved from minus 9 in June, to plus 2 in September; and is seen rising further to plus 4 in December. But a strong yen and Europe's debt crisis are making companies cautious about the outlook. The government is clearly concerned as well, with top spokesman Osamu Fujimura saying Tokyo remains on watch. (SOUNDBITE) (Japanese) JAPANESE CHIEF CABINET SECRETARY OSAMU FUJIMURA SAYING: "The survey noted that the economic recovery is expected to continue. However, there are still risks if the overseas economies are weaker than expected, or if the exchange rate or stock market moves more dramatically than expected. As such, we plan to continue to watch the economic outlook." Even with the positive Tankan results, the Nikkei stock average dropped nearly two percent Monday, amid fears of slowing global growth and the spreading impact of Europe's debt woes. Banking shares tumbled, on news that Greece will miss deficit targets needed to receive the next payment of a massive bailout package. But Tokyo stocks still outperformed, with shares outside of Japan shedding over 3.5 percent in afternoon trade. Hong Kong's Hang Seng led the losers, falling five percent. Analysts say the Bank of Japan is expected to keep rates on hold at its rate review this Friday (October 7) unless there's some drastic turn of events, such as the dollar falling below 75 yen. Like the U.S. Federal Reserve, the BOJ is seen maintaining interest rates effectively at zero for years to come. Toshi Maeda, Reuters.