Japan’s largest service-sector firms are their most optimistic in more than three decades even as confidence among manufacturers softens a tad, a Bank of Japan (BOJ) survey shows, offering a largely positive outlook for the economy as the central bank mulls its next policy move.

An index of sentiment among the country’s largest nonmanufacturers advanced to 34 in March, exceeding estimates and marking the highest level in more than three decades, according to the BOJ’s quarterly tankan report Monday. The gauge for the biggest manufacturers slipped to 11 from a reading of 13 in December that adjusts for a new base. The consensus estimate from economists was 10.

The positive figures for both groups show optimistic views outnumbered pessimistic ones.

The deterioration in manufacturing sentiment partly reflects the impact from scandals among some vehicle producers, which disrupted output at several of the nation’s biggest automakers, as well as from a major earthquake that struck Ishikawa Prefecture on New Year’s Day. The sentiment reading for large makers of motor vehicles led declines, sliding by 15 points.

"The deterioration in manufacturers is mainly due to scandals at some companies but that’s temporary,” said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities. "There is not much here to indicate the economic fundamentals are worsening, and that’s favorable for the BOJ.”

Maruyama said the data confirm that Japan’s economy is likely to continue a gradual recovery.

Industrial output unexpectedly fell for a second month in February versus the prior month, although authorities expect it to rebound in March.

Large nonmanufacturers saw improvement in their sentiment with the index reaching the highest level since 1991, helped by a surge in inbound tourists. The number of foreign visitors jumped to a record for the month of February, with a weak yen making the costs of shopping and dining out in Japan relatively cheap.

Those dynamics underpinned sentiment at companies in the accommodation, food and beverage sector, for which the gauge held at 52. The real estate gauge rose 6 points to 52, while information services increased 5 points to 54, the highest among all sectors.

The yen hit the lowest level in 34 years last week as traders positioned for the likelihood that the gaping interest gap between the United States and Japan might not narrow as quickly as previously thought. Some Federal Reserve officials have made hawkish remarks casting doubts on how fast and how far the U.S. will lower rates this year.

"The Bank of Japan’s tankan survey of business sentiment shows brisk improvement in service sectors in the first quarter, reflecting a pickup in consumer spending on services and solid demand for construction and real estate,” said Taro Kimura, economist at Bloomberg Economics.

The yen’s depreciation helps buoy profits among exporters while it weighs on households and small businesses by pushing up import costs.

"With the yen weakening and the stock market rising, there is now a sufficient buffer to absorb the BOJ’s policy changes,” said Yuichi Kodama at Meiji Yasuda Research Institute. "I believe that the BOJ is in an environment where it can easily proceed with normalization.”

Japan’s businesses across all industries anticipated the yen to average ¥141.42 per dollar in the fiscal year starting this month, according to the survey, still stronger than Monday’s level around ¥151.3, suggesting room for potential upside to their profit forecasts.

Monday’s report indicates companies will continue to increase their capital investment, with the large all-industry gauge for capital expenditure showing 4% growth in the new fiscal year. That’s lower than the 13.5% growth estimated last December for the fiscal year ended in March. Capital spending plans tend to be revised higher as the fiscal year progresses.

Whether steady profits get partly channeled into wage growth is a key question for the BOJ and Prime Minister Fumio Kishida. The prime minister’s popularity has languished around the lowest level since his ruling Liberal Democratic Party won back the office in 2012 due in part to household frustration over inflation. Kishida repeatedly urged businesses to raise wages as the costs of living rose at the fastest pace in four decades last year.

The survey is one of the most closely watched sets of data compiled by the BOJ and will likely be a factor under consideration as policymakers consider the trajectory of monetary policy.