Business confidence gauged by the diffusion index (DI) among major manufacturers climbed for the fifth straight quarter in June to plus 1, up 15 points from March — the first positive figure since June 2008 — the Bank of Japan said Thursday. The DI has now reached the level it was at before the global financial crisis started in the fall of 2008. Brisk exports to emerging economies like China and India have helped.

The DI is the percentage of firms reporting favorable business conditions minus the percentage reporting an unfavorable view. In fiscal 2010, major manufacturers and nonmanufacturers plan to increase capital investment 4.4 percent over that in 2009. This trend is helping some companies that depend on domestic demand. For example, the DI for major nonmanufacturers has improved for five straight months to minus 5.

There is little reason for excessive optimism, as the DI for medium-size and small firms remains low — minus 18 for manufacturers and minus 26 for nonmanufacturers. Although the DI for major manufacturers three months from now is plus 3 and that for major nonmanufacturers is minus 4, pitfalls lie ahead.

Among major nonmanufacturers, prospects for the tourism, entertainment, retailing and construction sectors are not good due to deflation. The consumer price index fell 1.2 percent in May from the year before — for the 15th straight monthly fall. Consumer spending per household dropped 0.7 percent in May from the year before — for the second consecutive monthly drop. The unemployment rate rose for the third straight month in May to 5.2 percent. Discussions by political parties on the merits of raising the consumption tax could dampen consumer spending.

Subsidies for eco-friendly car purchases will terminate at the end of September. Thus the DI for carmakers three months from now is 15 points worse than at present. Financial reconstruction efforts in Europe in the wake of Greece's debt crisis may cool down the European economy and raise the yen's value against the euro. China is also tightening its monetary policy. The government and the BOJ must take steps that will help increase capital investment, wages and employment.