"The forecast... is quite surprising because consumption is improving, together with a weaker yen, higher stock prices and also additional quantitative easing from the Bank of Japan and lower oil prices," he said.
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"The forecast from the manufacturing sector doesn't reflect the forecast of economists in Japan. [Given] the many positive factors that are now occurring, I think the manufacturing [outlook] is too cautious," he added.
Meanwhile, the big non-manufacturers index came in at +16, above expectations of +12. The outlook among big non-manufacturers stood at +15, above expectations of +14.
"Today's Tankan survey suggests that Japan's economy stabilized in the fourth quarter, but a rapid recovery is not on the cards," Marcel Thieliant, Japan economist at Capital Economics, wrote in a note.
"The survey was conducted between 12th November and 12th December, thus reflecting Prime Minister Abe's decision to postpone the sales tax hike and call snap elections. While this has not resulted in an improvement in consumer confidence, firms have perhaps more reason to cheer about the prospect of another four years of Abenomics," he added.
The diffusion index for big construction firms came in at +40, the highest level since February 2012. For big retailers, the diffusion index came in at -5, the lowest since June 2010, reflecting Japan's consumption tax hike to 8 percent from 5 percent in April