Key facts
- Big manufacturers' business sentiment rose to +24 in September from +22 in June.
- Companies expect inflation to hit 2.6% in three years and 2.5% in five years.
- The Bank of Japan raised interest rates to a 31-year high last month.
Business sentiment among large Japanese manufacturers improved for a sixth consecutive quarter in the July-September period, fueled by strong artificial intelligence-related demand, according to the Bank of Japan's latest Tankan survey released Thursday. The headline index for big manufacturers rose to +24 in September from +22 in June, surpassing market forecasts of +25. The sentiment for big non-manufacturers stood at +35, down from +37 in June but above market expectations of +36.
Companies surveyed expect inflation to reach 2.6% in three years and 2.5% in five years, indicating a belief that inflation will remain above the Bank of Japan's 2% target for an extended period. The central bank recently raised interest rates to a 31-year high and its governor has signaled a focus on preventing inflation from overshooting its target, opening the door for further rate increases.
The Tankan survey is a key indicator for the Japanese economy and influences the Bank of Japan's monetary policy decisions. The results will be considered alongside upcoming quarterly growth and inflation forecasts due later this month, which are expected to provide further clues on the timing of future rate hikes.