Japanese business confidence rose for a second quarter to its best in a year amid gathering signs that government efforts to bring the economy back to life are meeting with success, a survey showed today.

The Bank of Japan's quarterly "Tankan" index for the three-month period ended June 30 showed there were fewer companies pessimistic than there were three months ago. The widely watched index of large manufacturer's sentiment registered minus-37, an improvement from minus-47 in March. Economists had expected an index rate of minus-36.

The June survey indicated that government spending on public works, loan-guarantees to save small firms from bankruptcy and moves to repair Japan's banks have bolstered confidence in the corporate sector. Growth is linked to the government's economic efforts, executives said, and such actions are necessary for the recovery to continue.

"The economy will probably recover in the latter half of this fiscal year," said Hiroshi Okuda, chairman of Toyota Motor Corp. "Provided more money is allocated for public works, the economy will probably grow 0.5 percent this year."

A brighter outlook, coupled with better earnings prospects, may ease pressure on companies to lay off workers and reduce wages. With their jobs looking more secure, consumers may begin to spend more money, which would help speed the recovery. Spending by consumers accounts for about 60 percent of the economy and has been the missing ingredient in the government's recipe for a recovery.

Large manufacturers, with at least 1,000 employees, expect profits to rise 20.8 percent in the fiscal year ending March 2000, the survey showed.

Economists consider the survey, which subtracts the percentage of companies that are pessimistic from those that are upbeat, to be the broadest measure of business confidence because it gauges 9,500 firms' view of current and future general business conditions and earnings prospects.

The steady, though unspectacular, improvement in business confidence may ease concerns that the central bank soon will be forced to abandon its "zero-rate" policy. Masaru Hayami, the Bank of Japan governor, said last week that rates are on hold as long as deflation still threatens recovery.

Yields on government bonds fell Friday as investors bet that the results of the survey would not be enough to merit changing the policy of keeping rates close to zero.

"The recent strength in the economy is a temporary phenomenon reflecting huge government spending," TDK Corp. President Hajime Sawabe said. "If the government spends more money and profits improve next March then, at that time, we can probably say that there is a self-sustaining recovery."

Last November the government unveiled a broad-based plan to revive the economy, including tax cuts, public works spending and spending vouchers. While companies still expect to cut spending this year, the decline is less than anticipated in March. Large manufacturers expect to cut investment by 11 percent in the year ending March 2000, the confidence survey showed.

"Capital spending will see a slight recovery in the second half of 2000 as long as corporate profits recover next March and the economy is seeing a sustainable recovery," Sawabe said.

The stock market is betting on a recovery. The benchmark Nikkei 225 stock index has soared 39 percent from last year's low in October and is up 34 percent this year. A buoyant stock market may also encourage consumers to start spending again.

[Shortly after the report was released the Nikkei index rose about 1.5 percent. The dollar was up slightly against the yen, and a top Finance Ministry official confirmed to the Associated Press that the Bank of Japan had intervened to prop up the dollar. The 10-year Japanese government bond, however, was down slightly.]

The government is keen to ensure that the improving recovery isn't a false economic dawn. Convinced that strong growth in 1996 signaled a sustained recovery in the Japanese economy, the sales tax was raised to 5 percent from 3 percent, which sent the economy reeling back into a recession. Some executives share the government's caution.

"The business environment will remain just as hard as it has been until now," said Etsuhiko Shoyama, president of Hitachi Ltd., Japan's largest electronics maker. "We will go on reorganizing our businesses to return to profit."

Sentiment at smaller companies also improved in June, the confidence survey showed. The index for small manufacturers rose to minus-46 in June from minus-53 in March.

Confidence at small and medium-sized firms has risen because of an emergency government plan that provides loan guarantees to curb bankruptcies and prevent unemployment from rising.