Business sentiment among Japanese corporates improved in the three months to March, but was expected to weaken in the months ahead amid concerns that a rise in the sales tax will hurt growth, the closely-watched Tankan survey showed on Tuesday.
The headline index of sentiment among big manufacturers stood at plus 17 in March compared with plus 16 in the December survey. Economists polled by Reuters had expected a reading of plus 18.
But companies expected the sentiment index to slip to plus 8 in the June quarter, the survey also showed.
"This kind of slowdown is expected because most of the demand has been rolled out by end of March," Eisuke Sakakibara, former vice finance minister of Japan and currently a professor at Aoyama Gakuin University, told CNBC.
He was referring to a pick-up in demand ahead of the rise in the consumption tax to 8 percent from 5 percent that kicked in on Tuesday.
"The question is whether this slowdown will continue into the summer. Mr [Haruhiko] Kuroda will have difficulty in judgment, if necessary he would implement additional monetary easing," Sakakibara said referring to the Bank of Japan's governor.
"He [Kuroda] needs to decide sometime by May. The possibility of implementing monetary easing is 50 percent at this moment," he added.
Many analysts expected the Bank of Japan to ramp up its asset-purchase program to buffer the economy from the sales-tax hike, which is seen as key to alleviating Japan's debt burden.