TOKYO – Confidence at Japanese companies rose for a fourth straight quarter amid growing faith in the global economic recovery, a key central bank report showed Thursday.

In the Bank of Japan's quarterly "tankan" survey of business sentiment, the main index for large manufacturers stood at minus 14, an 11-point improvement from three months ago.

The figure represents the percentage of companies saying business conditions are good minus those saying conditions are unfavorable. So the higher the number, the better the mood.

The reading narrowly missed Kyodo News agency's average market forecast of minus 13. Sentiment among big non-manufacturers also improved to minus 14 from minus 21 in December.

The tankan helps the central bank guide monetary policy and is a closely watched barometer of the country's economic health. The latest results confirm the Bank of Japan's relatively upbeat assessment of the world's second-biggest economy. Gov. Masaaki Shirakawa said last month that stimulus measures at home and abroad are working, bolstering exports, production and consumer spending.

The data could convince the central bank's policy board to refrain from easing monetary policy further when it meets next week. At its last meeting in March, members voted to increase liquidity by expanding a low-interest loan program to banks. The move came amid growing political pressure to escalate the fight against deepening deflation.

The central bank says it does not tolerate deflation but expects prices to head south for the next couple of years. Lower prices may seem like a good thing, but deflation can hamstring economic growth by depressing company profits, sparking wage cuts and causing consumers to postpone purchases. It may also increase debt burdens.

The Bank of Japan surveyed a total of 11,528 companies between Feb. 23 and March 31 and almost 99 percent responded.

The mood among medium-size and small companies brightened, though their business conditions continued to lag. Medium-size manufacturers' confidence rose to minus 19 from minus 28, and the small manufacturers' index rose to minus 30 from minus 41.

The survey also showed that big companies plan to reduce capital investments by 0.4 percent in the new fiscal year, which started Thursday.

Although respondents said they still had too much capacity and too many workers, the excesses retreated from three months ago, pointing to an improving labor market. The country's unemployment rate in February was unchanged at 4.9 percent.

Companies are assuming that the dollar will average 91 yen this fiscal year. Large companies expect net profit to rise 48 percent in the year through March 2011.

Source