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Japan's companies are turning more optimistic, Tankan shows

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The Bank of Japan's (BOJ) Tankan survey showed the country's large manufacturers are more optimistic than expected, with the index hitting its highest level since March 2014, before a sales tax hike took effect.

"It progressively shows the Japanese economy is improving. Expectations are rising. Looking at the rest of the world, Japan doesn't look that bad," Peter Boardman, managing director at Tradewinds, told CNBC. "Sentiment within Japan is quite strong."

Japan's large manufacturers' index for June came in at positive 15, compared with expectations in a Reuters poll for a positive 12. For the September figures, the index was forecast at positive 16, compared with a Reuters poll forecast for positive 12. The tankan measures corporate sentiment by subtracting the number of companies who say business conditions are negative from those that say they are positive.

The survey showed big companies expect capex for the 2015-16 fiscal year will rise 9.3 percent, compared with a Reuters poll forecast for 5.2 percent. That's the biggest rise since 2006. But small firms expect capex to fall 15.7 percent over the period, although that came in better than a Reuters poll forecast for a 16.3 percent fall.

Boardman wasn't the only one who read the data bullishly.

"You're finally seeing a deleveraging process, a very long one, for the balance sheets for a lot of even the non-financials in Japan, coming to an end, which means capital allocations back to investors [and] better earnings momentum than just about anywhere in the world," Tim Seymour, chief investment officer at Triogem Asset Management, told CNBC.

But some remained pessimistic on the outlook.

"Firms reliably turn more optimistic in the second quarter, so we wouldn't read much too into this improvement. What's more, these 'projections' do in fact lag actual capital expenditure," Marcel Thieliant, a Japan economist at Capital Economics, said in a note Wednesday. "We already have plenty of activity data for April and May, which tend to provide more reliable indications about the pace of expansion (or contraction) of Japan's economy than the Tankan. On balance, these figures suggest that the economy contracted last quarter."

Recent economic data from Japan has painted a mixed picture.

Japan's policymakers have struggled to kick start the economy after decades of deflation, with the Bank of Japan launching a massive easing program in 2013 as part of "Abenomics," Japanese Prime Minister Shinzo Abe's plan to return the country to growth.

But after a consumption tax hike to 8 percent from 5 percent in April of 2014, the economy got clobbered when consumers stopped spending, forcing the government to postpone a second sales tax initially due this October.

Recent economic data have been mixed. Earlier this week, data showed industrial output fell 2.2 percent on month in May, worse than a Reuters poll forecast for a 0.8 percent decline. That spurred the government to say industrial production is stagnating and cut its forecast, according to Reuters.

But Japan's consumers appear to be stepping up to the plate, with retail sales rising 3.0 percent on year in May, beating a forecast for a 2.3 percent rise from a Reuters poll. That's consistent with data released last week showing household expenditures climbed more than expected in May.

Some of the fillip may be coming from incoming tourists.

"With a weaker yen, you’re seeing tourists from around the world coming to Japan," Tradewinds' Boardman told CNBC. "You had a large increase in inbound Chinese tourists and tourists in general in Japan, which has driven up a lot of retail sales."

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1