Japan business mood improves, tankan survey shows

Tokyo, Japan - Japanese business confidence has risen in the three months leading up to September, according to a quarterly survey conducted by the central bank on Thursday. This positive trend suggests that the economy is coping well with the impact of the conflict in the Middle East, supporting the argument for additional interest rate increases.

The information will be one of the factors influencing the Bank of Japan's upcoming growth and inflation forecasts later in the month, which will provide insights into when the central bank might raise rates again following a September hike.

The headline index measuring the business sentiment of large manufacturers rose to +24 in September from +22 in June, as revealed by the BOJ's "tankan" survey. This improvement exceeded market predictions, which had anticipated a reading of +25. Similarly, the index reflecting the sentiment of large non-manufacturers stood at +35 in September, up from +37 in June, also surpassing market expectations of +36.

Companies are projecting inflation to reach 2.6 percent in three years and 2.5 percent in five years, according to the survey. This indicates that businesses believe inflation will remain substantially higher than the Bank of Japan's 2 percent target for an extended period. In September, the central bank increased interest rates to a 31-year peak.

The bank's governor hinted that the central bank has entered a new phase, primarily focused on averting inflation from exceeding its target, paving the way for additional rate hikes.