The stock market is in tatters, the yen is soaring to levels that panic exporters and the new government is split with internal quarreling after just three weeks in power: the view from the street, though, is that things are perking-up.

The government’s monthly survey of “economy watchers” – workers with supposedly the highest sensitivity to economic trends - showed a small, but potentially significant, improvement in September.

Taxi drivers, hotel busboys, supermarket checkout girls and barbers all feel a little more confident about Japan’s economy than they did over the summer.

The picture is not altogether bright, however.

With a reading of 43.1, the survey’s overall result was better than it was in August, but anything below 50.0 suggests the view is basically negative – as it has been now for 30 consecutive months.

The Cabinet Office took the result as evidence that the deterioration in sentiment has finally ended.

The marginal improvement in confidence was driven by a recovery in retail sales that clearly favoured the low-priced end of the shopping mall.

Today’s prediction of a year of record profits by discount clothes maker Uniqlo and yesterday’s pullout from Japan by Versace after 30 years in the market, appeared to confirm that.

The economy watchers’ report, say analysts, is an increasingly worthwhile barometer of the real state of the world’s second largest economy.

Unlike some of the regular data releases – described by one senior economist as “rubbish in, rubbish out” – the economy watchers’ survey provides a less nuanced snapshot of industry.

The improvement in the index coincides with the election victory of the Democratic Party of Japan and the unseating of the previous incumbents – the Liberal Democrats – who ruled for 50 years.

The DPJ came to power with promises that it would emphasise the household sector and focus its attention on policies that enriched families, rather than big business.

Within the past three weeks, though, the new government has shown itself to be divided and uncertain how to achieve that.

The finance minister, Hirohisa Fujii, has twice reversed his position on whether the government should intervene to weaken the yen.

Shizuka Kamei, the financial services minister, has already attacked the Bank of Japan for “talking in its sleep” and accused big business of raising the murder rate in Japan: when the prime minister Yukio Hatoyama, rebuked the remark as “excessive”, Mr Kamei responded by saying that the prime minister “can’t replace me”.

In a hasty review of his forecasts for the Japanese economy, UBS’s chief Japan economist, Takuji Aida, said that there was now a 20 per cent chance of an economic freefall next year as political turmoil exacerbates other fundamental problems with Japan.

He placed a 50 per cent chance on potential growth falling further as the new government struggles to arrest the falling birthrate and declining business activity.

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