TOKYO, Oct 1 (AFP) : Confidence among major Japanese manufacturers improved in the past quarter after a sharp drop in the previous three months, a Bank of Japan survey showed Wednesday, but analysts warned the economy was not yet back on track.
The surprise result came after a string of weak data this week -- including a fall in factory output and household spending -- that fanned fears about the damage inflicted by an April sales tax hike, Japan's first in 17 years.
The levy rise slammed the brakes on the world's number three economy, underscored by a sharp contraction in gross domestic product between April and June.
Worries about another downturn in the three months to September have fuelled expectations the Bank of Japan (BoJ) will unveil further monetary easing measures after its policy meeting next week.
It has also thrown into question Tokyo's plans to raise sales taxes again next year as it tries to rein in one of the world's heaviest debt burdens.
On Wednesday, the BoJ's closely watched Tankan survey for July-September showed confidence among large manufacturers stood at plus 13, up one point from the previous quarter and beating market expectations for a plus 10 reading.
The survey of more than 10,000 companies -- the most comprehensive indicator of how Japan Inc. is dealing with the tax rise -- marks the difference between the per centage of firms that are upbeat and those that see conditions as unfavourable.
In another positive sign, expectations for capital spending also rose while the report suggested that the labour market had tightened to levels last seen in the early 1990s.
But the reading for large companies in the non-manufacturing sector tumbled to plus 13 from plus 19 in the previous three months.
"The sharp deterioration in business conditions in the non-manufacturing sector in today's Tankan suggests that output may have shrunk yet again in the third quarter," warned Marcel Thieliant from Capital Economics.
"The outlook doesn't suggest a rapid recovery, either. Large manufacturers expect conditions to remain unchanged this quarter, while large firms in the non-manufacturing sector predict a small improvement," he added.
Tsuyoshi Ueno, a senior economist at NLI Research Institute, said: "This is not a perfectly rosy picture...Big companies see economic conditions plateauing over the next three months. The latest Tankan cannot be seen as a sign of recovery yet."
