Japan Manufacturers' Confidence Hits Eight-Year High Amid Sinking Non-Manufacturer Sentiment

Japanese manufacturers' confidence hit an eight-year high in the third quarter of this year, according to a central bank survey. The 'tankan' survey showed that big manufacturers' business sentiment reached +24 in September, the highest since March 2018. This improvement was largely due to strong global demand for AI-related goods and receding supply constraints.

However, non-manufacturers' mood soured, with big firms' sentiment sliding to +35 from +37 in June. Service-sector firms were particularly affected by rising raw material and labour costs, as well as falling sales due to consumer resistance to price hikes.

The survey's findings may soften the Bank of Japan's (BOJ) chances of a back-to-back rate hike this month. While corporate inflation expectations remained elevated, they did not accelerate from three months earlier. The forecast for inflation within three years and five years ahead was 2.6% and 2.5%, respectively.

BOJ Governor Kazuo Ueda has highlighted the importance of keeping inflation expectations in check. The survey's outcome on corporate funding conditions showed that firms saw slightly softer increases in input costs, indicating a relatively loose financial environment.