Share prices and the yen rose strongly while bond prices fell after the stronger-than-expected report, which followed a string of disappointing data that suggested the economy's growth was slowing.

The survey's headline diffusion index (DI) for large manufacturers rose to plus 22 in June from plus 12 in March, the quarterly survey showed. That was the highest since August 1991 and well above a consensus forecast for plus 17.

With strong demand for Japanese digital cameras and other electronics products trickling through to the broader economy, the index for small manufacturers also rose to plus 2 from minus 3 in March, marking the first positive reading since November 1991.

The yen jumped about one percent to around 107.90 to the dollar after the tankan, while the Nikkei average of blue-chip share prices gained more than a percent to test the psychologically important 12,000 level soon after the opening.

Economists point to high oil prices and possible slower growth in China and the United States as concerns for the months ahead. The Federal Reserve raised US interest rates on Wednesday for the first time in four years, and some analysts say this could weaken demand in Japan's biggest single market.