TOKYO (AP) _ Business sentiment in Japan improved sharply in the April-June quarter and is expected to rise further in the next two quarters, a government survey of corporations showed Monday.

The quarterly study by the Economic Planning Agency showed the percentage of companies saying conditions had improved catching up with those who saw conditions worsening.

The ratio _ called the diffusion index _ improved from minus-26 in the January-March quarter to minus-8 in the April-June quarter, the agency said.

The report comes as Japan is fighting to emerge from its deepest economic downturn since World War II. Though the economy grew in the first quarter, the country is still grappling with record high unemployment.

The survey suggests businesses are increasingly optimistic that growth will continue.

The EPA survey showed that companies expect the economy to improve toward the end of the year.

For the July-September period, the diffusion index is forecast to rise to a plus-10, followed by plus-24 in the October-December quarter.

A positive reading in the July-September period would mark the first time the index has stood in positive territory in 10 quarters, an agency official said.

The survey also showed that corporations see mild improvement in profitability.

On a darker note, however, the survey showed that private capital investment remains depressed.

In the first half of the year, companies reduced capital expenditure by 7.9 percent from the same period a year earlier and said they plan to cut spending by a further 9.4 percent in the July-December period. That would mark the fourth straight period of contraction.

The EPA surveyed 4,528 manufacturers and non-manufacturers capitalized at or over 100 million yen ($870,000), of which about 4,300 responded.