The Bank of Japan has said the country's business confidence has improved for a sixth straight quarter, but companies are expecting a gloomy end of the year due to increased global economic uncertainty.
Sentiment among major manufacturers rose to a higher than expected reading of 9 in September from 1 in June, according to the central bank's closely watched Tankan survey of more than 11,000 firms.
The latest figure shows that optimists still outweigh pessimists among big manufacturers in terms of their view of Japan's economic climate - only the second positive reading since June 2008.
But the forecast for the December survey is for a reading of -1, suggesting that companies expect conditions to sharply worsen in the months ahead as Japan remains beset by deflation and the effects of a strong yen.
The strong yen has hurt exporters, making their goods more expensive and eroding companies' overseas profits when brought back to Japan.
Exports, a crucial driver for Japan's growth, expanded at their slowest pace this year in August, as the impact of the yen's strength and softening overseas demand illustrated the risks threatening a fragile recovery.
A strong domestic currency also makes imports cheaper, helping prolong a damaging deflationary cycle where consumers hold off on purchases in the hope of further price drops.
The reading was made with companies expecting an exchange rate of 89.44 yen to the dollar, higher than in the previous survey but much lower than current levels, which if sustained will further erode confidence.
Japan stepped into the currency markets in September for the first time since 2004 in a bid to stem the yen's strength after it hit a 15-year high against the dollar, and has repeatedly warned it is ready to do so again.
Japan's economy expanded by an annualised 1.5% in the April-June period, sharply lower than the previous quarter's 5%.
On Monday, Prime Minister Naoto Kan ordered a supplementary budget for fresh stimulus measures be put together to shore up the flagging economy, after he recently announced 915 billion yen package to add jobs and boost growth.
