TOKYO (AFX-ASIA) - Japan's export-led economic recovery may be pushed back by another quarter -- given today's disappointing Bank of Japan Tankan survey -- from earlier hopes of a mild upturn as early as January-March, economists said. The survey for March came in below expectations, with key indices flat compared with the previous release, in contrast with private-sector forecasts that large manufacturers would begin to show a mild improvement. However, the June forecasts in the latest surveyed showed relatively strong gains from a low base, providing hope a US-led rebound in exports will eventually feed through to a cyclical upturn. Meanwhile, persistent structural problems may result in a narrow and short-lived recovery, economists said. The large manufacturers' diffusion index (DI) came in at minus 38, with the large non-manufacturers' DI at minus 22, and large firms' full year capital expenditure down 6.7 pct. In June, the large manufacturer diffusion index is expected to improve to minus 27, with the large non-manufacturer diffusion index seen at minus 21. Private-sector economists had forecast the large manufacturers' diffusion index in March would come in at between minus 33 and minus 36, compared with minus 38 in the last survey in December. Vice Administrative Finance Minister Toshiro Muto said the ministry believes the deterioration of the economy has come to a halt, given the results. "We expect the worsening of the economy to come to a halt," Muto told AFX-Asia in the ministry, but added that the overall economy is unlikely to turn up until the third quarter to September. "We think the upturn will emerge from the third quarter or the autumn as the adjustment in corporate inventories will show signs of further improvement, with a revival in production and exports," he said. Aozora Bank senior economist Yasukazu Shimizu said the survey suggests the recovery is likely to become evident in April-June or possibly later. "Many people had expected that the Japanese economy reached its bottom in October-December quarter but today's Tankan shows that the bottom was in the January-March period, or (will be) even in the April-June period," he said. "I think expectations by the majority that the economy reached its bottom in the October-December period were a bit too optimistic." West LB Securities chief economist Andrew Shipley said the disappointing survey and recent weak output data cast doubt on hopes for a near-term recovery that have recently helped propel financial markets higher. "It was a weaker report than the market was hoping for as deflation is worsening and there is grim capex spending," Shipley said. "Despite the surprisingly strong US economy Japan doesn't seem to be rebounding and the markets could find this very disappointing if Japan (fails to benefit). It is (a) 'yellow light' for investors looking at Japan," he said. "A lot of industries such as car manufacturers and heavy machinery still see deterioration. It is worrisome. The US recovery is still consumer driven and the capex is still weak so Japan does not to stand to gain much," he added. Industrial output in February, released last week, rose 1.3 pct month-on-month after a fall of 1.5 pct in January, compared with consensus private-sector forecasts of a 2.7 pct rise. "Japan's automobile makers have transferred a lot of production to the US and the IT and electronic machinery makers stand poised to respond to a rebound but it won't be an IT-hardware driven recovery," Shipley said. "The Japanese have cut back on spending. It's a pretty grim sight. The government can reform and deregulate but they don't seem inclined to do so," he added. "We still think there will be a recovery in the second half but we had thought growth in the US would lead to growth in Japan. The weak (output) figures ... should be taken together with this report as a warning not to get bullish on Japan." Koji Fukaya, chief forex analyst at Bank of Tokyo-Mitsubishi, said the March figures were worse than expected but the June forecasts slightly better. "There is a worrying divide between the manufacturers and non-manufacturers, as well as large and small-sized firms, which shows Japanese companies are totally dependent on overseas economies," he said. Fukaya noted Japanese firms forecast an average dollar rate of 124 yen in the new fiscal year in calculating their earnings. "If the dollar drops to 125 yen, authorities will be cautious about that level" and may defend it to help sustain Japanese companies' earnings. JP Morgan chief economist Masaki Kanno said there is no doubt conditions have improved, although capex remains weak and the Japanese economy is still beset by structural problems that may temper the extent of the rebound. "The environment has improved and the demand and supply conditions domestically have improved, as well as overseas," he said, adding that excess inventories are also being mopped up. However, a distinction must be made "between cyclical and structural problems. With the structural problems remaining unsolved, the next peak will be low and the (period of recovery) shorter," Kanno said. ING Barings chief economist Richard Jerram agreed. The expected cyclical rebound "does not solve the underlying problems in the financial system," with the recovery expected to last only a few years. "I think the government has not allowed the financial system's problems to get out of hand and this has assisted the improvement in sentiment but there are still a lot of structural problems that need to be tackled," Jerram said. Akihiko Suzuki, senior economist at UFJ Institute Ltd, said the forecasts for June seem too optimistic. "The June forecast seems too optimistic. Although there are some improvements, the Japanese economy has yet to show signs of a steady economic recovery," Suzuki said.