BoJ’s closely watched Tankan survey revealed that while manufacturing sector showed continued improvement, sentiment among non-manufacturers appeared to have peaked, which may complicate BoJ’s considerations for another rate hike later this month.
The Tankan survey reported that large manufacturing index rose from 11 to 13, reaching its highest level since March 2022. Large manufacturing outlook also increased from 10 to 14. However, non-manufacturing index dipped slightly from 34 to 33, marking its first decline in 16 quarters, and non-manufacturing outlook remained unchanged at 27.
Long-term corporate inflation expectations edged up, with companies forecasting inflation to hit 2.3% in three years and 2.2% in five years. Despite these rising expectations, the mixed sentiment data do not strongly support another imminent rate hike by BoJ.
In a separate development, an unscheduled revision to historical data indicated that Japan’s real GDP contracted at an annualized rate of -2.9% in January-March, a much steeper decline than the previously estimated -1.8% contraction. This significant revision is likely to impact BoJ’s upcoming quarterly growth and price forecasts, which are due at the July 30-31 policy meeting.
