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Japan’s manufacturers turned optimistic for the first time in almost two years and demand for services rose for a second month in July as the world’s second- largest economy emerged from its deepest postwar recession.

Today’s reports reflect the impact of a 25 trillion yen ($275 billion) fiscal-stimulus package aimed at boosting household spending, and a rebound in demand overseas. Japan’s policy makers have pledged to sustain their stimulus efforts to strengthen the recovery, and the Bank of Japan today is forecast to keep its interest-rate target near zero.

Sentiment among large manufacturers rose to 15.5 points this quarter, the highest reading since the survey began in 2004, a joint survey by the Cabinet Office and Finance Ministry showed today. The tertiary index, a measure of service demand, advanced 0.6 percent from June, the Trade Ministry said.

“We still can’t say that the economic outlook is entirely rosy, but things look much better for businesses than they did three months ago,” said Noriaki Matsuoka, an economist at Daiwa Asset?Management Co. in Tokyo. “With sustained optimism, companies will begin to invest in equipment bit by bit, and they’ll begin to hire workers bit by bit, too.”

The yen was little changed after today’s reports, trading at 91.05 per dollar at 12:01 p.m. in Tokyo from 91.01 before the releases were published.

Inventory Rebuilding

Japan’s economy grew in the second quarter for the first time in more than a year, helped by some $2 trillion in global stimulus that bolstered the country’s exports and household spending. The spending encouraged factories to increase output for a fifth month in July as they rebuilt depleted inventories, and exports are showing signs of improving as the global recession eases.

The improved outlook has helped the Nikkei 225 Stock Average has risen 46 percent since it slumped to its 26-year low on March 10. Consumer confidence also rose for an eighth month in August.

Manufacturers such as Nippon Electric Glass Co. have announced plans to boost capacity. The world’s third-biggest maker of glass for flat-panel televisions will increase production of glass substrates by 10 percent next year as demand for flat-panel televisions surged on Japanese and Chinese government incentives, Nikkei English News reported this week free credit report without a credit card.

Tatsuta Electric Wire & Cable Co. raised its first-half net income outlook by a quarter to 250 million yen, citing a recovery in electronics materials demand.

Capital Investment

While some companies are optimistic, the rebound in global demand hasn’t spurred capital investment. Machinery orders, a key gauge of outlays of plant and equipment, slid to a record low in July and companies including Toyota Motor Corp. are shutting assembly lines paring spending plans.

Today’s report offers a hint of the results likely in the Bank of Japan’s Tankan survey. The nation’s most closely watched gauge of corporate confidence is due October 1.

Recent reports show consumer prospects aren’t as promising as the corporate sector’s. Spending by Japanese consumers has been supported by the government’s stimulus measures, which provided households with cash handouts and incentives to buy cars and electronics. Economists say that boost is fading.

Japan’s “packages have been working,” said Kyohei Morita, chief economist at Barclays Capital in Tokyo. “But that doesn’t reflect a sustainable recovery from the slump. It’s unlikely that the increases in demand will steadily continue.”

The number of unemployed rose by 200,000 in July, the biggest increase since March, driving the jobless rate to an unprecedented 5.7 percent. Wages slumped for a 14th month in July as employers cut their workers’ summer bonuses and consumer spending dropped at the fastest pace in five months. The value of households’ financial assets slid 3 percent last quarter, a Bank of Japan report showed today.

“As the effects of the government’s spending incentives wane, economic growth will slow,” said Daiwa Asset’s Matsuoka. “With the worsening job market, consumers will be very careful about what they spend on.”

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