Mixed Economic Signals Cast Doubt on BOJ Rate Hike

The Bank of Japan's next move on interest rates may be less certain than previously thought, thanks to a mixed picture of Japan's economy.

A central bank survey, known as the 'tankan', found that manufacturers' confidence hit an eight-year high over July-September, but non-manufacturers' mood soured. This could soften the chance of a back-to-back rate hike this month.

The 'tankan' survey showed corporate inflation expectations remained elevated, but did not accelerate from three months earlier. The Bank of Japan had hiked its policy interest rate to 1.25% last month and signalled readiness to hike further to prevent inflation from overshooting its target.

While manufacturers' sentiment improved due to strong global AI demand and receding supply constraints, lacklustre consumption for durable goods may have put the brakes on sentiment. The survey found that service-sector firms saw rising raw material and labour costs hit profit, and suffered falling sales as consumers shunned price hikes.