Japanese manufacturers' optimism hits eight-year high, bolstering rate-rise expectations

The latest quarterly Tankan survey released on October 1 indicates that confidence among Japan's major manufacturers reached a level not seen since 2018, with the index rising to 24 from 22. Large non-manufacturing firms posted a marginal decline, moving to 35 from 37. The upbeat reading is attributed to robust overseas AI demand, resilient PMI figures, and rising real wages that are sustaining service-sector demand.

Corporate price expectations stayed high but edged lower, with firms forecasting 2.5% inflation five years out, down from 2.6%. The yen remained weak near 158 per dollar, and oil prices rose amid stalled US-Iran talks, adding external pressure. These factors together are likely to reinforce expectations that the Bank of Japan will implement another policy-rate increase by the end of December.