The survey, which is among key data the Bank of Japan will scrutinise at its policy meeting this month, suggests the export-reliant economy was weathering the hit from U.S. tariffs, at least for now, analysts say.

The headline index measuring big manufacturers' business confidence perked up to +14 in September from +13 in June to mark the highest level since December 2024, the "tankan" survey showed. It compared with a market forecast for a reading of +15.

An index gauging big non-manufacturers' sentiment stood at +34 in September, unchanged from the level in June and matching a median market forecast.

"The latest Tankan survey confirms that Japan's economy is shrugging off trade tensions and supports our long-held view that the Bank of Japan will resume its tightening cycle this month," said Marcel Thieliant, head of Asia-Pacific at Capital Economics.

Big companies expect to increase capital expenditure by 12.5% in the current fiscal year ending in March 2026, the tankan showed, up from a 11.5% gain projected in June and above a market forecast for a 11.3% rise.

The tankan came after a hawkish board split at the BOJ's September meeting and calls for a near-term rate hike by a dovish policymaker led markets to price in roughly a 60% chance the bank will hike rates to 0.75% from 0.5% this month.

BOJ Governor Kazuo Ueda has signalled the bank's readiness to keep raising still-low borrowing costs if there are enough signs that Japanese firms can weather the tariff hit and boost spending on equipment and wages.

However, the tankan showed a less upbeat picture on the outlook.

Both big manufacturers and non-manufacturers expect conditions to worsen three months ahead, underscoring looming risks such as the chance of slowing U.S. demand and intensifying pain from tariffs.

"Firms from a wide range of sectors pointed to concern over the impact of U.S. trade policy," a BOJ official told a briefing on worsening sentiment among manufacturers.

Some firms also complained of rising labour costs, slowdown in demand from inbound tourism and the risk of higher prices hurting domestic consumption, the official said.

"All in all, the tankan showed Japan's economy is in fairly good shape and unlikely to suffer a severe slump from tariffs," said Yoshiki Shinke, senior executive economist at Dai-ichi Life Research Institute.

"But the tankan doesn't tell us much about how the U.S. economy will evolve and how Japan could be hit. In the end, it will be a judgment call by the BOJ on whether it wants to wait for more data, or go ahead and pull the trigger," he said on the likelihood of an October rate hike.

Japan's economy expanded an annualised 2.2% in the first quarter on robust consumption, underscoring the BOJ's view the country was on course for a moderate recovery.

U.S. President Donald Trump last month signed an executive order formalising the trade agreement with Japan, removing some worries in Tokyo about the implementation of the reduced tariff rate of 15% on key Japanese export items such as cars.

But exports and factory output slumped in August, a sign the pain from higher U.S. levies could intensify in coming months.

The BOJ ended a massive, decade-long stimulus programme last year and raised rates to 0.5% in January, on the view that Japan was on the cusp of durably hitting its inflation target of 2%.

While inflation has exceeded 2% for more than three years, the central bank has paused since then to scrutinise the extent to which tariffs and slowing U.S. growth could hit firms' profits and wage-hike appetite.

The tankan showed little change from three months ago in corporate inflation expectations with companies projecting inflation to average 2.4% one, three and five years from now.