Companies have soaked up excess production capacity. An index that measures manufacturing capacity against demand has been at or below zero for nine quarters, indicating there are few idle factories, according to the central bank's Tankan survey of business sentiment. The index stood at 31 points in March 2002 as the economy emerged from its last recession.
``People tend to blow hot or cold on Japan,'' Jessop said. ``At the moment, the pendulum has swung too far. If you're looking at developed economies, Japan is going to be one that surprises on the upside this year.''