Business sentiment among large Japanese manufacturers improved for a sixth straight quarter and hit the highest level in eight years, according to the Bank of Japan’s quarterly tankan survey. The tankan data shows that the business sentiment index for large manufacturers rose to 24 in the July-September period, compared to 22 in the previous quarter. A market forecast of 25 was missed, but continued improvement in the confidence score could help support the case for the BOJ to keep taking rates higher.
While sentiment at big manufacturers improved, the figure for the nonmanufacturing companies declined for the first time in five quarters, to 35 from 37 in the previous quarter. Since large manufacturers have made reasonable progress in passing on increased oil costs since spring, they have secured profits, Kiuchi wrote, adding that price increases are more difficult for non-manufacturers. He also noted that booming artificial intelligence and semiconductor demand is believed to be supporting business sentiment at manufacturers.
The tankan survey, which was released Thursday, shows business confidence remained solid not only for large manufacturers, but also at smaller companies, with the index for midsize companies increasing to 23 from 17, and at smaller companies, with the index rising to 14 from 9. As more than 99% of companies polled normally respond to the questionnaire, the data is considered to be of a very high quality and an accurate reflection of the situation on the ground. In the latest tankan, 9,104 companies were polled from Aug. 26 to Sept. 30.
In the tankan survey, companies are asked whether business conditions are “favorable,” “not so favorable” or “unfavorable.” Positive readings mean those answering “favorable” outnumber companies answering “unfavorable.” The BOJ raised its policy rate — the uncollateralized overnight call rate — on Sept. 18 to 1.25% from 1%, bringing Japan’s borrowing costs to the highest level since 1995. Prior to the September rate increase, expectations that the BOJ would become more hawkish increased, but the bank ended up offering mixed signals about the outlook. Two dissenting votes suggesting dovishness balanced mildly hawkish remarks from Gov.
The market expects the BOJ to raise rates in December, with investors pricing in an 82% chance as of Thursday afternoon, according to data from Totan ICAP. The central bank is scheduled to hold a two-day policy meeting on Oct. 29 and 30, and the market is pricing in a 22% chance of an increase at that meeting.
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