Small is profitable in twin-track Japan Happy Bears is aptly named. The Tokyo-based provider of same-day domestic services - from cooking and cleaning to dog-walking - recently took on its 4,300th registered maid. Backed by bank loans and a sprinkling of cash from private equity, the 13-year-old company increased sales by a fifth last year, to Y1.5bn ($19m). "We've got no problems with access to funds," says managing director Yuki Takahashi, a former head of marketing at a Japanese trading house in Hong Kong. We're growing as fast as we can. It is one of the winners in Japan Inc's twin-track economy. As shown by the central bank's much-watched Tankan survey of business sentiment, published on Monday, large export-oriented companies are continuing to languish, suffering from a persistently strong yen and patchy external demand. Just 13 per cent of big manufacturers - classified as having equity capital of more than Y1bn - said current business conditions were "favourable." Only 11 per cent expected favourable conditions for the remainder of the current fiscal year. Smaller companies focused on domestic demand are generally doing better. In Japan, small companies with equity capital of less than Y100m are responsible for 99.7 per cent of all enterprises, and about 60 per cent of jobs. In the last two quarterly surveys they have been the most buoyant segment of the world's third largest economy. Private consumption was the main contributor towards Japan's surprisingly strong growth of 1.1 per cent in the first quarter. The latest forecast by companies responding to the survey is for small companies" profits in the current fiscal year to grow across all industries by 7.3 per cent - much higher than the average rises for large and medium-sized enterprises (3.1 per cent and 0.3 per cent, respectively). In part, this "divergence" is caused by the strength of the yen, says Hiroshi Shiraishi at BNP Paribas. The yen is the only major currency to have risen against the US dollar over the past three months. On Monday it strengthened again, eroding exporters" competitiveness. But higher spirits among smaller companies can also be traced to a relaxation of lending standards among domestic banks. For years, small companies have complained of banks retreating from funding the most risky of borrowers. That has weighed on the expansion plans for this vital segment of the economy, says Takuji Aida, economist at UBS in Tokyo. Now, though, Japan's banks are more urgently seeking income from arranging new loans, as yields on their government-bond holdings fall. And more importantly, companies have noticed. The Tankan survey shows that banks" lending attitudes to small companies - a subjective assessment of their chances of getting a loan - turned positive in September last year. When this happened last, in March 2004, it coincided with the beginning of Japan's best growth streak of the past 20 years. In the latest survey, the percentage of small company respondents reporting "accommodative" conditions - where they could get a loan if they wanted one - minus those reporting "severe" conditions rose to 4, the best reading since March 2008. "Conditions are set for SMEs to actively expand their businesses," says Mr Aida, noting that small companies have begun this fiscal year with their most aggressive capital investment plans in six years. At Ohashi Engineering based outside Tokyo, Masayoshi Ohashi, company president, says his average cost of bank finance is now about two-fifths the rate he was paying before the Lehman crisis in September 2008. Record sales of Y3bn last year were partly driven by orders from trading houses supplying smartphone makers. "The main reason for our success is that we provide competitive products," he says. We'll keep growing. Additional reporting by Nobuko Juji in Tokyo