TOKYO (AFP) - Japanese business confidence has soared to a more than six-year high, the Bank of Japan said on Tuesday, underscoring a fragile economic recovery, but company bosses appear cautious about the future.

The Tankan survey, which covers the January-March quarter, surged to its highest level since December 2007, with a reading for large manufacturers rising to plus 17 from plus 16 in its December survey - marking the difference between firms that are upbeat from those that see conditions as unfavourable.

Small and medium-sized firms, as well as companies in the non-manufacturing sector, were also more positive on conditions for their businesses and the wider economy.

However, the closely watched survey of more than 10,000 companies pointed to tepid investment among major firms and slumping sentiment for the April-June quarter, possibly due to Japan's sales tax rise, which comes into effect on Tuesday.

Tokyo approved the hike from 5.0 per cent to 8.0 per cent in an effort to tame huge public debt. The government is also mulling another rise to 10 per cent, still modest compared to some nations' consumption tax.

Prime Minister Shinzo Abe swept to power in late 2012 on a ticket to nudge the world's number-three economy out of a cycle of falling prices and lacklustre growth.

The last time Japan brought in a higher sales levy, in 1997, it was followed by years of deflation and tepid economic growth that defined the country's protracted slump.