Japanese most closely watched business barometer rose to its highest in 13 years in September but the outlook for the coming months dimmed, underscoring concern that an economic recovery is losing steam.
The Bank of Japan's 'tankan' quarterly survey on Friday showed the key diffusion index (DI) for large manufacturers rose to plus 26 from plus 22 three months earlier, its highest since May 1991, and beating a consensus forecast of plus 23.
Yet the DI - derived by subtracting the percentage of companies downbeat about their business conditions from those that are upbeat - for three months ahead was plus 21.
"Only the headline figure was better than expected. Rather, the overall data presents the impression of weakening momentum," said Takehiro Sato, an economist at Morgan Stanley.
Earlier in the week, crude oil prices hit record highs above $50 a barrel, raising concern over higher costs for Japanese firms who are totally dependent on imported oil.
In addition Tokyo share prices fell for a ninth consecutive session to hit six-week lows amid growing worries over signs of a slowing in the Chinese and US economies - the two main destinations for Japan's exports.
For now, though, financial markets on Friday took heart from the stronger-than-expected headline figure in the tankan, which covered 10,312 companies and is widely regarded as the most important indicator of the health of business in Japan.
Economics Minister Heizo Takenaka said the tankan confirmed the government's view that corporate activity is improving.
"Although the result was stronger than expected by the markets, I am not particularly surprised," Takenaka told a news conference. "The result confirmed our view that the economy is recovering firmly and that corporate sector activity is improving," he said.
The tankan survey also showed that large firms upgraded their capital spending plans for the year ending next March, seeing a 6.1 percent rise compared with a 5.7 percent increase they forecast in June.
Smaller firms also saw improvement in spending plans. Smaller firms tend to revise up their plans as the fiscal year goes forward.
Earlier on Friday, the government said the nation's jobless rate eased to 4.8 percent in August from 4.9 percent in July.