TOKYO (Kyodo) -- Business confidence among major Japanese manufacturers improved for the first time in two quarters in December, buoyed by production recovery in the auto industry as the effects of the recent certification scandal waned, the Bank of Japan's Tankan survey showed Friday.

But the firms said they were less confident about the outlook, citing uncertainty in overseas economies, with U.S. President-elect Donald Trump expected to advance his protectionist trade policies after he takes office in January.

The sentiment index for companies such as carmakers and technology companies rose to 14 from 13 three months ago, higher than the average market forecast of 12 in a Kyodo News survey.

Business confidence among automakers inched up to 8 from 7 as Toyota Motor Corp. in September resumed production of three popular models affected by the scandal in which it admitted to not fully following government standards in vehicle tests.

The resumption also benefited auto parts makers, boosting sentiment for general-purpose machinery makers to 29 from 23, the data showed. Robust demand for capital expenditures also contributed to the rise in the index for the overall manufacturing sector.

The index for large nonmanufacturers, including the service sector, fell to 33 from 34 in September, worsening for the first time in two quarters.

Confidence among retailers and hotel operators deteriorated due to rising wages and staff shortages, although some firms have been successful in passing increasing costs on to consumers, the central bank said.

The Tankan index represents the percentage of companies reporting favorable conditions minus the percentage reporting unfavorable ones.

Japanese companies expect the U.S. dollar to trade at 146.88 yen in fiscal 2024, up from 145.15 yen in the previous survey in September.

The latest data will be among the materials assessed at the BOJ's two-day policy meeting starting Wednesday when it will be determined whether further interest rate hikes are necessary.

BOJ Governor Kazuo Ueda has said the bank will raise its policy rate from the current around 0.25 percent if economic indicators move in line with its expectations as it shifts away from a decade of unorthodox monetary easing.

"The latest Tankan results show the economy is gradually improving," Shinichiro Kobayashi, senior economist at Mitsubishi UFJ Research and Consulting, said. "In that sense, they will not be a factor that prevents the BOJ from going ahead with rate hikes."

The bank's board members will make a final rate decision based on such data as moves in foreign exchange rates and how financial markets react to an expected rate cut at the U.S. Federal Reserve's policy meeting right ahead of the BOJ meeting, he said.

Looking ahead, manufacturers' sentiment is expected to worsen slightly to 13 from 14. Nonmanufacturers project sentiment will deteriorate to 28 from 33.

The BOJ surveyed 9,004 companies, of which 99.4 percent responded between Nov. 11 and Thursday.