Business sentiment in Japan hits a 6-year high

Tokyo on November 7, 2013.
Yoshikazu Tsuno | AFP | Getty Images

Business sentiment among big manufacturers in Japan rose to its highest level in six years in the three months to December, the Bank of Japan's closely-watched Tankan survey showed on Monday.

The headline index of sentiment rose to plus 16, up 4 points from the September quarter and compared with analyst expectations in a Reuters poll for a reading of plus 15.

(Read more: And the next driver for Japan stocks is...)

It is the latest in a string of recent signs that the stimulus policies of Prime Minister Shinzo Abe are having a positive impact on the world's third largest economy.

Tankan confirms upbeat Japan sentiment: Pro
Tankan confirms upbeat Japan sentiment: Pro

"Things are getting better. It doesn't matter whether it's at the capex [capital expenditure] level or consumer sentiment [levels]. You see it in so many sectors, not just big end consumption like increased golf club memberships, but at the low-end as well," Nicholas Weindling, a fund manager at J.P. Morgan Asset Management told CNBC Asia's "Squawk Box."

"People are spending more on every day items like rice balls. You see capex signs going up because profits are up 50 percent this year; companies have the flexibility to spend more where they want to," he added.

(Read more: Place your bets: China or Japan?)

Sentiment among big firms in the services sector also improved, with the big non-manufacturers index rising 6 points to plus 20 in the three months to December, above forecasts for a reading of plus 16.

Still, sentiment among Japanese corporates was cautious with regards to the outlook. The Tankan survey showed that big firms in the manufacturing and non-manufacturing sectors expect business conditions to worsen slightly in the three months to March.

"Business sentiment is expected to weaken by March, reflecting some caution about the rise in the consumption tax rate," said Masayuki Kichikawa, managing director and chief Japan economist at Bank of America Merrill Lynch.

(Read more: Kuroda: We will hit 2% inflation and maintain it)

Tankan: More proof that Abenomics is working
Tankan: More proof that Abenomics is working

Scheduled to take effect in April, the tax hike will lift the national sales tax to 8 percent from 5 percent currently.

Japan embarked on aggressive monetary stimulus program in April and this together with fiscal stimulus from the government has given the economy a boost and raised hopes that the country may be able to escape a period of deflation.

Earlier this month, the government approved an 18.6 trillion yen ($182 billion) stimulus package aimed at dulling the impact of an upcoming sales-tax hike on the economy.

In addition to stimulus measures, a weakening yen has boosted corporate sentiment. The yen fell to a five-year low against the dollar on Friday at around 103.92 and has tumbled almost 20 percent this year.

(Read more: Dollar soars to five-year higher against yen)

"Companies are still conservative about exchange rates so if the yen continues to weaken, this could lead to an upgrade of earnings expectations," said Kichikawa.

Japanese markets showed little immediate reaction to the Tankan survey, with the Nikkei stock index slipping 0.5 percent in early trade while the yen was steady at around 103.14 per dollar.

Follow us on Twitter @CNBCWorld