Japan's Tankan Report Bolsters BOJ Tightening Case Amid Easing Yen Rate Expectations

The latest Tankan report from Japan has reinforced the case for further Bank of Japan (BOJ) tightening, but easing yen rate expectations may limit its impact.

Sentiment among large manufacturers improved to 24 from 22, its strongest reading in years, while small manufacturers strengthened to 14 from 9. However, the services sector was less convincing, with large non-manufacturers slipping to 35 from 37 and small non-manufacturers holding at 15.

Manufacturers also expect conditions to soften over the coming quarter, with the large-manufacturing outlook at 21. Yet other parts of the survey remain relatively firm, with employment conditions staying deeply negative at -38 and signalling persistent labour shortages.