Japan Economy Grows
Newly produced cars and trucks are seen at an industrial port before they are loaded to a cargo ship in Yokohama, south of Tokyo May 17, 2012.Reuters

Business sentiment among big Japanese manufacturers improved unexpectedly, and they are planning to boost investment at the fastest pace since 2007.

Bank of Japan's latest Tankan survey found large companies are set to increase capital expenditure by 8.6% in the year through March 2015, despite the country's recent sales tax hike. The key index measuring business sentiment among big manufacturers rose to +13 in September from +12 in June.

Economists expected a reading of +10 for the period.

"The big manufacturers index is actually quite firm - we had been expecting manufacturing sentiment to come down a little bit considering that economic numbers have slowed but I think the weaker yen is lifting sentiment among manufacturers," Izumi Devalier, Japan economist at HSBC, said in a note.

Large manufacturers' business plans were based on the assumption that the yen would average 100.73 per dollar in the current fiscal year, according to the Tankan report.

The US dollar is trading up 0.14% at 109.8 yen as at 8:20 am GMT.

A weak yen is beneficial for Japanese exporters as they gain more when they route their profits back to home.

Meanwhile, the quarterly poll of over 10,000 companies also showed that sentiment among large non-manufacturers and small manufacturers deteriorated from the previous reading.

The index for big non-manufacturers stood at +13, below +19 in the previous survey.

The higher spending from big manufacturers comes after Japan's economy suffered its biggest contraction in five years following the country's sales tax hike in April.

The country is planning a further increase in sales tax to 10% from the current 8% in 2015. The Japanese administration has indicated that it would cushion the negative impact of the planned sales tax hike with increased stimulus.

The upbeat business sentiment reading comes after a string of weak data from the world's third largest economy this week.

On 30 September, the country reported that industrial production fell 1.5% on month in September, with household spending declining 4.7% on year.

However, retail sales rose 1.2% on year in August.