The tankan's closely-watched business sentiment diffusion index for large manufacturers was minus 37. It had been forecast by analysts to improve to minus 35 in June from minus 47 in the survey three months earlier. "The business sentiment indexes, supply/demand indexes and corporate financing indexes showed an improvement overall," Shosaku Murayama, director of the BOJ's research department said after its release early Monday morning.

However, Murayama added "the judgment that production facilities and employment are excessive hasn't changed, and companies are still cautious in their capital investment plans."

Despite the weaker-than-expected data, Muneyuki Ichihara, manager of investment information and services department at Nomura Securities, said investors were encouraged by the outlook for September whenthe tankan is expected to improve to minus 22.

Tokyo stocks rose sharply following the tankan's release. Ichihara said he believed the Wall Street's record highs on Friday were the bigger factor behind the Tokyo's market's rise. On Friday in New York, the Dow Jones Industrial Average, the Standard & Poor's 500 Stock Index and the Nasdaq Composite Index all set record highs. Murayama said the BOJ can't assess the overall state of the economy with the tankan data alone. The BOJ official also said the he can't judge how much January-March gross domestic product data affected the tankan numbers, though he repeated that about 80 per cent of respondents answered the tankan survey after seeing the GDP numbers.

"We don't have enough information showing in what way the GDP numbers were reflected in the tankan," he said. The GDP data, released on June 10, showed that Japan's economy expanded at an annualized pace of 7.9 per cent.

Asked whether the government's large public-works outlays boosted businesssentiment, Murayama said that although some industries, such as the lumber and wood products and processed metals sectors, showed a large improvement in their sentiment indexes, he couldn't say whether government spending was behind the better numbers.

Japanese Finance Minister Kiichi Miyazawa said that the business sentiment survey's results were "within expectations." The minister said that the dollar's rise above 122 yen in the wake of the tankan may not have been due to artificial action, noting that the yen's fall may have reflected a market view that the tankan results were slightly worse than expected.

"Maybe it wasn't a result of something artificial, but I don't really know," Miyazawa said.

Haruhiko Kuroda, head of the ministry's international bureau, earlier confirmed rumors that Japan bought dollars for yen following the tankan's release.

Asked about the yen's fall after a meeting of the government's industrial competitiveness panel, Miyazawa said, "the market had expected stronger [tankan]numbers, and [the yen's fall] is a result of its reaction when that didn't happen." When Miyazawa was asked why he thought the yen's fall wasn't due to intervention, he noted that both the euro and the dollar rose against the yen.