Major Japanese companies are more optimistic than expected, supporting the Bank of Japan to continue raising interest rates

Zhitong
2024.10.01 02:57
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Japanese large companies' confidence exceeded expectations, which may prompt the Bank of Japan to raise interest rates at the end of this year or early next year. According to the Bank of Japan's short-term outlook report, the September large manufacturing confidence index remained stable at 13, while the non-manufacturing confidence index slightly increased to 34. Despite external factors that may keep interest rates unchanged, strong confidence data could influence decisions. Economists generally predict that the Bank of Japan will raise interest rates by the end of January next year. In August, Japan's unemployment rate dropped to 2.5%, indicating a tight job market

According to the latest report from Nikkei Finance APP, the confidence of large companies in Japan is more optimistic than expected, which may lead the Bank of Japan to consider raising interest rates at the end of this year or early next year. The quarterly Tankan survey released by the Bank of Japan on Tuesday showed that the confidence index for large manufacturers in September remained stable at 13, while the confidence index for large non-manufacturing enterprises slightly increased to 34. Economists had previously expected the confidence index for manufacturing enterprises to drop to 12 and the confidence index for service enterprises to drop to 32.

The Tankan survey is one of the key data released by the Bank of Japan before announcing the interest rate decision on October 31st. Although factors including the Japanese and U.S. elections are expected to keep the Bank of Japan's interest rates unchanged, the continued strength in the Tankan survey data may prompt the Bank of Japan to consider raising interest rates.

Atsushi Takeda, Chief Economist at Itochu Research Institute, stated, "Today's Tankan report confirms the recovery in demand, which is the starting point of a virtuous cycle. Companies have maintained their price expectations, indicating that there are no obstacles to the Bank of Japan raising interest rates at present."

The report on Tuesday showed that companies of different industries and sizes have maintained their inflation expectations. The latest Bloomberg survey indicates that most economists predict the Bank of Japan will raise interest rates by the end of January next year, with 15% of economists expecting an interest rate hike in October.

The strong business confidence index may be welcomed by the incoming Japanese Prime Minister, Shigeru Ishiba. He won the leadership election of the Liberal Democratic Party last week and is expected to be elected as the Japanese Prime Minister later on Tuesday.

Another report released by the Japanese Ministry of Health, Labor, and Welfare on Tuesday showed that the employment market in Japan remained tight in August. The unemployment rate in Japan dropped from 2.7% a month ago to 2.5% in August, while the job-to-applicant ratio slightly decreased from 1.24 to 1.23, indicating that there are 123 job openings for every 100 job seekers.

The tight labor market is one of the factors leading to wage increases, as companies compete to retain and attract new employees. Companies and labor unions will soon lay the groundwork for next year's wage negotiations

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