TOKYO - BUSINESS confidence among major Japanese manufacturers has improved for the first time in two-and-a-half years, the central bank's quarterly Tankan survey showed on Wednesday.

The Tankan found that big manufacturers expect sentiment to continue to improve, forecasting a confidence rating of minus 30 for September.

But they have downgraded their profit outlook, forecasting a 39.5 per cent drop in pre-tax earnings for the current financial year to March. Three months earlier they had expected a 19.7 per cent decline.

Before the current economic downturn began, Japan's corporate sector had been a key driver of a recovery in Asia's largest economy following the recessions of the 1990s.

Now major exporters, many of which are deep in the red, are cutting back their investment in an effort to ride out the recession.

Large firms across all sectors plan to trim their investment in factories and equipment by 9.4 per cent on average for the current fiscal year, the Tankan results showed.

Asia's biggest economy shrank at an annualised pace of 14.2 per cent in the first quarter of 2009, the worst performance on record.

Experts say a full-fledged recovery is unlikely in Japan until demand picks up in major overseas markets such as the United States and Europe.

While hopes are mounting that the economy has come through the worst of its export and production slump, numbers released on Tuesday showed Japan's unemployment rate rose to a more than five-year high of 5.2 per cent in May.

The government has announced a series of economic stimulus packages, including cash handouts for households and incentives to buy fuel-efficient cars. -- AFP