TOKYO (AP) -- Japanese companies remained deeply pessimistic even as a central bank survey showed their confidence improving from record lows, suggesting the world's second-largest economy is crawling rather than sprinting out of recession.
In the Bank of Japan's quarterly "tankan" survey released Wednesday, the closely watched sentiment index for large manufacturers stood at negative 48 in June. Three months ago it fell to negative 58, the worst reading ever.
The figure represents the percentage of companies saying business conditions are good minus those saying conditions are bad. The lower the number, the greater the pessimism.
"The worst is behind us, but the question mark is whether this recovery can be sustained into next year," said Susumu Kato, chief economist at Calyon Capital Markets Asia in Tokyo.
The latest result marks the first uptick in 2 1/2 years but undershot an average forecast of minus 43 in a survey of 11 economists by The Associated Press. Other measures in the tankan, which polls 10,000 companies, revealed troubling weaknesses could hamper recovery in the world's second-biggest economy.
Big companies are in a better mood, but it wasn't enough to convince them to spend more money. Major manufacturers and non-manufacturers sharply reduced their capital spending plans and now expect to cut expenditures by an average 9.4 percent this fiscal year through March 2010.
"Although the current economy is improving, companies cannot find confidence that this recovery will continue even if domestic and overseas economic stimulus packages run their course in the future," said Kyohei Morita, chief economist at Barclays Capital in Tokyo.
Based on the latest tankan, Japan's nascent economic recovery is neither broad nor self-sustaining, he said.
The sentiment index for big non-manufacturers inched up to minus 29 from minus 31 in March.
Confidence at other companies barely moved. Sentiment among medium-sized manufacturers stood at minus 55 from minus 57, while the reading for small manufacturers stayed flat at minus 57.
For big manufacturers, the improvement in sentiment stemmed largely from industries benefiting from global stimulus measures, analysts said. Government data Monday showed that industrial output increased 5.9 percent from the previous month, matching a similar jump in April.
Massive government outlays in China are boosting sales of cars, equipment and machinery. In Japan, consumer incentives such as lower highway tolls and an "eco-points" program for energy-efficient appliances spurred some spending.
Like its Asian neighbors, Japan's economy relies heavily on exports and was hit hard by the unprecedented drop in global demand triggered last year by the financial crisis. The country's biggest corporate names, including Toyota Motor Corp. and Sony Corp., responded by aggressively cutting production, inventories and jobs.
The country's jobless rate jumped to a five-and-a-half-year high of 5.2 percent in May, and it looks to be headed even higher.
Companies in the tankan say they still have too many workers and too much capacity. So trimming more fat is not necessarily a bad thing, Kato of Calyon said.
"For me, it was positive information," he said of lower corporate spending plans this year. "Japanese companies are trying to reduce capacity as much as possible, which would be better in the longer term."
Others also found reasons to hope in the tankan.
Companies of all sizes forecast sentiment to keep climbing over the next three months. Their financial standing strengthened, and they are finding it a bit easier to borrow money from banks.
"It may take some more time, but if loan standards are lowered alongside the ongoing cyclical recovery, we think sentiment will improve among the (small and medium-sized companies)," and capital spending will recover gradually, said Takuji Aida, senior economist at UBS Securities.
The government expects the economy to shrink 3.3 percent this fiscal year before rebounding 0.6 percent in the 12 months ending March 2011.
The Bank of Japan surveyed a total of 10,319 companies between May 26 and June 30, of which 99 percent responded.
The tankan helps the central bank guide monetary policy, though board members are not expected to change interest rates when they meet on July 14-15.