Japan's business confidence hit its highest level in two years as the world's number two economy continued to recover from its worst slump in decades, the Bank of Japan said yesterday.

The index of sentiment among major manufacturers rose for a fifth straight quarter to one point in June from minus 14 in March, according to the central bank's closely watched Tankan survey of more than 11,000 firms.

The reading means that optimists outweigh pessimists among major manufacturers in their view of Japan's economic climate for the first time since June 2008, beating analyst forecasts of a reading of minus four.

The June survey signals an increasingly upbeat mood, with companies predicting surging profits while planning to raise spending on plants and equipment, potentially boosting an economy struggling for sustainable growth.

Exports have driven the country's recovery from recession but recent data showed the domestic picture remains weak, with unemployment surprising economists by edging higher in May to 5.2 per cent, missing expectations.