Japan business mood reaches 8-year high, bolsters case for BOJ hikes

Tokyo, October 1 - Japanese business confidence surged to an eight-year high in the July-September quarter, reflecting elevated inflation expectations, according to a central bank survey. This buoyant sentiment bolsters the case for the Bank of Japan (BOJ) to consider interest rate hikes, as the economy navigates the impact of the Middle East conflict.

The headline index measuring business sentiment among large manufacturers rose to +24 in September, up from +22 in June, marking the highest level since March 2018. The BOJ's tankan survey also revealed that manufacturers expect inflation to hover around 2.6 percent over the next three years and 2.5 percent in five years, despite their commitment to the central bank's 2 percent inflation target.

This persistence in inflation expectations suggests that the BOJ may maintain a vigilant stance against rising prices. The results from the survey, combined with improved business sentiment, are expected to reinforce the BOJ's perspective that inflation will remain persistent. The BOJ had already raised its policy interest rate to a 31-year high in the previous month, signaling the bank's intention to prevent inflation from overshooting its target, potentially leading to further rate hikes.