Japanese manufacturers are set to boost investment plans

September's quarterly Tankan survey of large manufacturers rose to a larger than expected 24, up from 21 in June.

It measures the percentage of firms saying business conditions are better compared those saying they are worse.

Analysts said the improvement had come because of a weaker yen and more optimism about company earnings.

Zero rates

A lower yen makes Japanese exports cheaper and more competitive on world markets, and boosts earnings when dollar transactions are converted back into yen.

The confidence figure of 24 was a two-year high, and raised the prospects of a further hike in interest rates within the next six months.

"This is positive news for the Bank of Japan and we believe that this can leave room for a rate hike before the end of the year, " said Masaaki Kanno, chief economist at JP Morgan Securities.

The Bank of Japan ended six years of zero interest rates in July when it raised the benchmark rate to 0.25%.

The zero rate had been introduced in 2001 in an effort to revive the economy, which had been in long-term recession since the early 1990s.

The rate rise signalled the bank's confidence in the strength of the Japanese economy, which has seen accelerating growth and falling unemployment.

However, September's Tankan survey found that Japanese companies were more cautious in the outlook for the future, with particular concerns about a slowdown in the US economy - a key export market.