The sentiment index improved to -1 between April to June, from -4 in the previous quarter.
“The Tankan outcome indicates the economy is on track for a recovery in line with the forecast by the Bank of Japan and this may reduce market expectations for further easing by the central bank this month,” said Naoki Iizuka, a senior economist as Mizuho Securities in Tokyo.
The survey outcome is a green signal for big manufacturers to boost their capital spending in the current financial year.
A second round of relief comes from the yen currency weakening more than 4% against the US dollar since the start of this year.
One of the biggest issues that has been a cause for concern among Japanese manufacturers in recent times has been the strength of the Japanese currency.
A strong currency makes Japanese goods more expensive to foreign buyers and also hurts profits of exporters when they repatriate their foreign earnings back home
“Compared to a few months ago, the yen hasn’t strengthened significantly and is showing some stability, so it seems not to be having as great an impact on the economy as before,” said Masamichi Adachi of JP Morgan Securities.