TOKYO (MNI) - The Economy Watchers' Survey index for current conditions in Japan jumped to 38.8 in January from 35.4 in December, marking the second straight monthly rise on continued solid demand for cars and flat-screen TVs, the Cabinet Office said on Monday.

The 3.4-point rise in January was due to fewer people saying things were worse than three months earlier. It followed 1.5-point rise in December, which was the first monthly rise in three months.

The 7.0-point drop in November 2009, which is believed to have been caused by the government's ill-timed announcement that Japan was back in mild deflation, was the largest fall since the survey began in August 2001.

The headline index stood below the key 50 level -- the dividing line between net positive and net negative responses to the survey -- for the 34th straight month.

It hit a record low of 15.9 in December 2008 but posted its first gain in 10 months in January 2009 as more people said conditions were unchanged after deteriorating drastically in previous months.

The latest survey showed that "the economic downtrend has ceased but weak movements continue," the Cabinet Office said, repeating is assessment from the previous month.

Until recently the government had gradually upgraded its assessment on sentiment.

"While consumers remained frugal, the household sub-index rose due to good sales of passenger cars and flat-screen TVs thanks to subsidies and tax breaks for buying low emission vehicles as well as the reward program for purchases of greener consumer electronics," the Cabinet Office said.

The monthly survey was conducted between Jan. 25 and Jan. 31.

In January, the business sub-index (manufacturers and non-manufacturers serving other businesses) rebounded as both orders and sales improved despite downward pressure on sales prices, the Cabinet Office said.

The labor sub-index posted the second straight monthly rise because some firms began to hire people.

The overall forward-looking index, which gauges conditions two to three months ahead, surged to 41.9 in January from 36.3 in December, up for the second month in a row.

The 5.6-point gain followed the 1.8-point rise in December, which was the first rise in three months.

The index stayed below the key 50 level for 32 months in a row.

In January 2009 the index rebounded to 22.1 from a record low of 17.6 hit in December 2008.

The forward-looking index rose on expectations that the government's plan to expand its reward program to include buying greener homes and renovating existing homes to be more energy efficient should continue supporting the household sector, the Cabinet office said.

Companies expect orders to grow and there are moves to hire more employees, it added.

The breakdown of the survey follows:

The household index for current conditions: 37.4 in January vs. 33.8 in December, up for the second consecutive month.

The business index for current conditions: 40.4 in January vs. 37.9 in December, posting the first rise in four months.

The employment index for current conditions, reflecting views among private job placement agencies and publishers of job wanted ads: 44.3 in January vs. 40.7 in December, up for the second straight month.

The household index for future conditions: 41.4 in January vs. 35.5 in December, up for the second straight month.

The business outlook index: 42.8 in January vs. 36.8 in December, also up for the second month in a row.

The employment outlook index: 43.1 in January vs. 39.7 in December, showing the second straight monthly rise.

The survey outcome is monitored closely by the Bank of Japan as it appears to reflect retail sector sentiment more accurately than some other data.

The watchers' index gauges whether respondents with jobs most sensitive to economic conditions -- taxi and truck drivers, department store sales staff and restaurant and shop owners -- believe economic conditions have improved or worsened from three months before.

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