Price growth: Ueda at a budget committee session of Parliament in Tokyo. Earnings forecasts are a key indicator for assessing the initial momentum of wage increases, and Ueda has pledged to actively gather data on them ahead of this week’s BoJ meeting. — Bloomberg
TOKYO: Confidence among Japan’s large manufacturers rose to the highest level in four years, reinforcing market expectations for the Bank of Japan (BoJ) to raise interest rates this week.
The business sentiment index advanced to 15 this month from 14 in September, the BoJ’s quarterly Tankan business survey showed yesterday. The result matched the median economist forecast in a Bloomberg poll.
The gauge for large non-manufacturers held at 34, remaining near the strongest level since the early 1990s. A positive reading means more firms view conditions as “favourable” than “unfavorable.”
The Tankan, one of the most closely scrutinised data sets released by the BoJ, suggested Japan’s businesses have so far avoided significant fallout from US tariffs – a source of uncertainty the central bank has highlighted for months.
The results strengthen the case for governor Kazuo Ueda’s board to raise rates on Friday, which would mark the first increase since January.
“This Tankan reduces the level of concerns for the BoJ. A rate hike later this week is certain now,” said Hideo Kumano, executive economist at Dai-Ichi Life Research Institute and a former BoJ official.
“The BoJ isn’t only looking at recent moves but also for implications for longer-term economic growth. Today’s Tankan supports the case for the bank’s economic outlook to be realised.”
The data showed longer-term inflation expectations remaining steady, and better profits forecasts.
Confidence also improved among oil and coal-product makers, offering the BoJ an early read on how firms are responding to lower US tariffs after reductions took effect in mid-September.
Roughly 70% of companies had submitted responses to the previous survey days before that change.
A still-weak yen continues to aid exporters while increasing running costs for service sector firms, which employ most of Japan’s workforce.
Companies expected the yen at 147.06 against the US dollar on average for this fiscal year, weaker than the 145.68 they predicted in September.
Economist Taro Kimura said: “The BoJ’s fourth-quarter Tankan showed business sentiment remains resilient despite tariff headwinds, probably supported by Prime Minister Sanae Takaichi’s pro-stimulus fiscal stance and a weaker yen after her leadership win.
“The report will reinforce the case for the BoJ to pare stimulus further at its Dec 18 and 19 meeting.”
Ueda repeatedly cited uncertainty over US tariffs and the initial momentum of wage negotiations as factors that would be critical for authorities considering the next rate hike.
Large companies across all industries plan to ramp up capital expenditure by 12.6% for this fiscal year, marginally up from the previous quarter.
Net profit forecasts show a 0.2% decline, improved from an around 5% drop projected in the previous report.
Earnings forecasts are a key indicator for BoJ officials assessing the initial momentum of wage increases next year.
Ueda last week pledged to “actively” gather information on that front for the December meeting.
Wage gains remain a key part of making inflation stable, after lagging price growth for much of the past three years.
“Solid business investment suggests the likelihood of solid wage growth next year,” said Kumano, adding that labour market indexes showed extreme tightness.
With inflation staying at or above the BoJ’s 2% target since early 2022, price growth expectations among businesses appear anchored around 2%. — Bloomberg
