TOKYO -- Reflecting steady recovery in the global economy, business confidence among Japan's big manufacturers improved for four straight quarters in the three months to September, according to the Bank of Japan's closely watched Tankan quarterly survey released on Monday.

The key index for large manufacturers' sentiment stood at 22 in September, up 5 points from the June survey. The reading was above the median estimate of 18 as shown by 23 research institutes compiled by QUICK, and was the highest since the September 2007 survey.

The streak of positive business sentiment is the longest since the 2012 December survey through the 2014 March survey, when corporate sentiment improved for five straight quarters.

Large manufacturers now expect the yen's average rate during fiscal year 2017 to be 109.29 to the dollar, forecasting a weaker currency from the survey three months ago, but much stronger than the current mid-112 yen range. Should the current dollar-yen rate persist, corporate earnings will be positively impacted.

Sentiment among large nonmanufacturers stood at plus 23, unchanged from the previous figure and the same as the median estimate of 23.

"The September Tankan indicates that the economic expansion brought about by a weaker yen, as well as the improvement in the world economy, is permeating Japan," wrote economists at SMBC Nikko Securites in a memo. However, they pointed out that business conditions have deteriorated at nonmanufacturers catering to households, such as retail and accommodations as well as food and beverage services.

"This might imply that the April-June economic recovery, which was led by domestic demand, might be temporary. Fixed investment plans also remain prudent, and the animal spirit still seems to be lacking," they added.

Looking ahead, both large manufacturers and nonmanufacturers are less optimistic, with both sectors expecting the index to fall to plus 19 in the next three months.

Fueling their pessimism is the tight labor market, which continues to concern businesses. The index measuring job conditions for all large enterprises fell to minus 18, down 2 points from the previous survey and the lowest since the March 1992 survey.

Trickle down

The uptick in conditions at large companies was also felt by small enterprises. Business conditions in all industries classified as small enterprises stood at 9 in the September survey, a two-point gain from the previous survey and the highest since the November 1991 survey.

Improvements in business conditions at small companies tended to lag behind large enterprises during the economic expansion phase prior to the 2008 financial crisis, with its peak a meager 0 from 2006 to 2007. With the current economic expansion cycle going on for 58 months now -- one of the longest ever -- small businesses are starting to feel the benefits.

But the tight labor market is also a concern to small businesses. Compared to large companies, it is harder for small enterprises to hire people in a tight market, putting them at risk of missed business opportunities as well as succession of businesses. The index measuring labor conditions at small enterprises was minus 32, the lowest since 1992.

Tankan's sentiment indexes, closely watched by economists and financial markets, are calculated by subtracting the number of respondents who say conditions are poor from those with the opposing view. A positive reading means optimists outnumber pessimists.

The latest survey was conducted between Aug. 29-Sept. 29.