Big Japanese firms grew more confident about business conditions in the current quarter, a government survey showed on Thursday, but softer capital spending plans dimmed the outlook of the economy.
The improvement in the business sentiment puzzled some economists who had expected that global market turmoil, which has sent the yen up and share prices down, could have taken its toll on businesses.
The analysts stuck to their view that a more closely watched tankan corporate survey by the Bank of Japan, due out on Oct. 1, would show a slight worsening in the business sentiment and that the hurdle for the central bank to raise rates remained high.
Thursday's survey was also in contrast to the Reuters Tankan, a monthly survey of leading companies designed to track the BOJ tankan, which showed that manufacturers' sentiment hit a two-year low in September.
The BOJ left its key policy rate unchanged at 0.5% on Wednesday, but maintained rates could not remain so low forever.
"The survey shows an improvement in business sentiment but it's a bit puzzling as it was conducted on Aug. 25, when we had a rise in the yen, a fall in share prices and political uncertainty," said Naoki Iizuka, senior economist at Mizuho Securities.
But he added: "I am more concerned about soft capital spending figures, with weakness in spending plans among small firms."
The business survey index (BSI) on sentiment at large manufacturers in the July-September quarter was plus 7.7, compared with minus 2.2 in April-June.
The BSI measures the percentage of firms that expect the business environment to improve minus the percentage that expect it to worsen, so a positive score represents overall optimism.
The sentiment index at large non-manufacturers in the July-September quarter rose to plus 5.3 from minus 0.2 in the previous quarter, while that at big firms overall was up at plus 6.2 against minus 0.9 in April-June, the survey showed.
But companies see their capital spending rising 1.5% in the financial year to next March, slowing from a 3.3% rise seen in the previous survey.
"The reading in capital investment does not look good," said Azusa Kato, economist at BNP Paribas. "While uncertainties in the economic outlook are rising, there is a possibility that companies will further cut down on their plans," she added.
Soft capital spending, which has been the key drive behind Japan's steady growth, was blamed for economic contraction in the April-June.
Markets will now closely watch the BOJ's tankan survey for September, due out at 8:50 a.m. Tokyo time on Oct 1, for clues on the strength in the Japanese corporate sector and on the timing of the next rate hike by the BOJ.
A Reuters poll of 24 economists showed on Wednesday that the BOJ's tankan survey is expected to show big manufacturers' sentiment worsened slightly in September, and economists said their views have not changed despite the improvement in the business sentiment in the latest government survey.
Market participants expect the central bank to keep interest rates on hold until December or maybe early next year, while it gauges the effect of global markets turmoil on U.S. growth, another Reuters poll showed on Wednesday.