TOKYO - Japanese business confidence held steady close to a two-year high and firms set aside more cash to invest in new plant and equipment, a key survey showed Monday, underpinning confidence in the economy.
The Bank of Japan's closely watched "Tankan" survey showed the business sentiment index for major Japanese manufacturers at 23 in June, unchanged from the previous survey in March and in line with market expectations.
A positive reading means confident firms outweigh the pessimistic ones. A figure of 23 indicates generally upbeat sentiment and is within sight of December's two-year peak of 25.
Analysts said that the BoJ still looked set to raise interest rates again sometime in the next few months as the economy recovers from its long slump.
"Despite recent weakness in manufacturing output data, sentiment was solid at large enterprises," noted Morgan Stanley economist Takehiro Sato.
The survey "as good as gives the go-ahead for the BoJ to raise rates," probably in August, said Sato.
"In our view there has been no big surprise in this Tankan and so we continue to expect the BoJ to raise interest rates in September," said UBS Securities economist Akira Maekawa.
For the quarter to September, the index for large manufacturers is projected to fall one point to 22.
The Tankan survey also showed confidence among major non-manufacturers holding steady at a figure of 22 over the three months to June.
Chief Cabinet Secretary Yasuhisa Shiozaki said the survey supported the government's view that "the Japanese economy is expanding steadily."
Major Japanese companies reported plans to ramp up their capital investment as they put some of their bumper profits back into production and other facilities, although investment is seen rising at a slower pace than last year.
Corporate capital investment has been a key driver of Japan's current economic recovery, the longest since World War II, and the survey results helped to ease concerns over some recent patchy data.
Large companies in all industries aim to increase their spending on new plant and equipment by 7.7 percent on average in the fiscal year to next March.
At the time of the previous survey in March, they had pencilled in an increase of 2.9 percent.
The corporate capital spending plans were "quite strong," said Yoshikiyo Shimamine, chief economist at Daiichi-Life Research Institute who believes the BoJ will raise interest rates again by August at the latest.
"The central bank has kept saying it is looking at the future sustainability of the economic recovery and prices will begin to pick up if the economy keeps expanding," he said.
The Bank of Japan has left its key lending rate unchanged at 0.5 percent since February amid lingering deflationary pressures, with core consumer prices down for a fourth straight month in May.
Political factors could also make it tricky for the central bank to make a move this month, even though it has formal independence in setting monetary policy, analysts believe.
Prime Minister Shinzo Abe's poll ratings have plummeted over a scandal involving missing pension records, fuelling speculation that his party could suffer heavy losses in upper house elections on July 29.
Financial markets showed little reaction to the Tankan survey.
The Tokyo Stock Exchange's benchmark Nikkei-225 index of leading shares closed up 7.94 points at 18,146.30.
The dollar slipped to 122.99 yen in Tokyo afternoon trade from 123.15 in New York late Friday.