Tokyo, Japan (BBN)-Japanese shares headed higher despite a key quarterly survey showing business confidence among big manufacturers worsened in the third quarter.
The Bank of Japan's Tankan survey's headline index fell three points to plus 12, which was below expectations as business sentiment worsened for the first time in three quarters, reports BBC.
Investors are betting on more stimulus from the central bank on the back of this data, analysts said.
The Nikkei was up 1 per cent at 17,561.22.
The survey comes just a day after data showed that Japanese factory output shrank by 0.5 per cent in August from July, and retail sales also fell short of expectations.
Chris Weston, market strategist at trading firm IG, said the weak outlook from Japanese firms will only "add fuel" to calls for more easing from the central bank.
"Yesterday's poor industrial production numbers have some traders talking about a negative print in the third quarter GDP [gross domestic product] report," he said in a note on Thursday.
A second quarter of contraction would put the world's third largest economy in a technical recession.
China data boost
China's official manufacturing purchasing managers' index (PMI) was at 49.8 in September, picking up from 49.7 in August and beating expectations.
The vast sector, however, did shrink for the second consecutive month.
A number below 50 indicates factory activity contracted, while one above shows expansion.
Chinese markets are closed for public holidays until 7 October.
But Australian shares made gains after the better-than-expected data as China is the country's biggest trading partner.
The benchmark S&P/ASX 200 index was up 1.3 per cent at 5,086.90 points.
South Korea's Kopsi index was also up 0.4 per cent to 1,970.81 after data showing that factory output in August was stronger than expected as consumption grew.
The industrial output index rose by a seasonally adjusted 0.4 per cent in August from July, after a revised 0.3 per cent fall in the previous month.
BBN/SK/AD