A closely watched index of business confidence at Japan’s major manufacturers is expected to show the first improvement in two and a half years, the Nikkei business daily reported Sunday.

The Bank of Japan will on July 1 publish its quarterly “Tankan” survey, which in the previous three months slumped to a record low of minus 58 as the world’s second biggest economy slid deeper into recession.

But it is forecast to recover to minus 41 for the June quarter, the daily said, citing estimates by 25 private think-tanks.

The projected size of improvement would be the largest since June 2002, when the index jumped 20 points, the daily said.

“Inventory adjustments ran their course in the April-June period,” an analyst at Dai-ichi Life Research Institute told Nikkei, citing one reason for the pickup in confidence.

Many other analysts agreed, the daily reported, adding that they said the pace of production cutbacks had slowed while exports recovered.

The index is calculated by subtracting the per centage of companies that report unfavourable business conditions from the per centage of firms that say conditions are positive.

Among other reasons for the uptick is the positive effects of economic stimulus measures implemented by governments at home and abroad.

However, in the long term the index is expected to rise to minus 34 for the September quarter, the daily said, while many analysts expect the pace of its recovery to slow further.

The June index of business confidence at major nonmanufacturing companies is estimated at minus 26, up five points from the March reading, the Nikkei said.