The economists surveyed by Bloomberg News Service predicted the quarterly Tankan index of confidence will remain unchanged at 23 points in the second quarter from the first quarter when the Bank of Japan releases the report on July 2. A positive number means optimists outnumber pessimists.

Fanuc Ltd. and Sony Corp. are adding capacity to meet higher demand, helping capital spending extend gains after rising at its fastest pace in six years in 2006. The Tankan report will help the Bank of Japan determine whether the economy is strong enough to withstand higher interest rates.

The survey will show that "capital spending still has room to grow," said Makoto Ishikawa, an economist at Japan Research Institute Ltd. in Tokyo. "Consumption of services has been solid and exports to emerging markets have been strong."

A reading of 23 would only be three points lower than September 2004's 26, the highest since Japan's bubble economy burst 16 years ago. Confidence rose to 25 in December. Large manufacturers are companies with more than 1 billion yen ($8.1 million) in capital.

Consumers at home and abroad are helping the world's second-largest economy extend its longest expansion in 60 years. Demand for services rose at its fastest pace in six months in April and unemployment fell to a nine-year low in the same month.

Revised gross domestic product figures showed the economy grew at a 3.3 percent pace in the first quarter, more than five times as fast as the U.S., thanks to exports and spending by consumers and companies.

A surge in government bond yields probably won't discourage companies, which are using record profits to fund expansion. Receding concerns over U.S. growth caused yields on both U.S. and Japanese debt to rise last week. Japan's 10-year bonds had their longest losing streak since October.

Bank of Japan Governor Toshihiko Fukui told lawmakers today that the central bank will raise interest rates gradually based on developments in the economy and prices. The bank kept the key overnight lending rate at 0.5 percent last week, and Fukui said he needs to be "more confident" about the economic outlook before proposing an increase.

Eleven of 17 economists surveyed by Bloomberg News this month say the bank will increase the rate in August as long as the Tankan and second-quarter growth are solid.

"Even if the Tankan is just in line with expectations, that combined with strong GDP numbers would make the chance of a rate increase high," said Kazuhiko Sano, chief strategist at Nikko Citigroup Ltd. in Tokyo. "The market expects the bank to move about once every six months to bring the rate toward a neutral level."