Improved manufacturing sentiment to weigh on Bank of Japan’s rate decision

A quarterly survey of major Japanese manufacturers released yesterday showed business sentiment improving to its best level in four years, even after US President Donald Trump raised tariffs on goods from the US ally to a baseline level of 15 percent.The Bank of Japan (BOJ) is bound to take the results of its quarterly “tankan” survey into account during a policy meeting on Friday, when it is expected to raise its benchmark interest rate. Analysts said the stronger results might sway the BOJ toward pressing ahead with a 0.25 percentage point rate hike that would take the key rate to 0.75 percent.That expectation gave the yen an advantage over the US dollar, allowing the currency to appreciate 0.6 percent to 154.955 against the US dollar, nearing its strongest level in a week.The BOJ survey showed the measure of major manufacturers expressing optimism rose to 15 from 14 in the past quarter, the highest level in four years. The index showed the percentage of companies reporting positive conditions minus the percentage reporting unfavorable ones. The measure of sentiment for all companies rose to 17 from 15, it said.The survey “struck all the right notes from the Bank of Japan’s perspective,” Capital Economics senior Asia-Pacific economist Abhijit Surya said in a report. “It showed that business conditions are improving, profit margins remain elevated and firms are upbeat about their investment intentions,” he added.While the BOJ’s overall survey showed improvement, forecasts for the next quarter were less positive, and businesses expected inflation to remain at 2.4 percent, above the central bank’s target range.Elsewhere, the Bank of England (BoE) and the European Central Bank (ECB) also set monetary policy this week.Markets have almost fully priced in a cut by the BoE, as UK inflation is finally showing some signs of easing, while expectations are for the ECB to leave rates unchanged.Traders have begun speculating that a rate hike could be on the cards for the ECB next year.Meanwhile, investors would also have the chance to catch up on economic data that was delayed by the US government shutdown, including the jobs report for last month and the monthly consumer price index.“It’s worth taking this week’s data with a pinch of salt, given problems collecting data as well as the direct economic impact of the government shutdown,” L&G Asset Management Ltd investment strategy head Ben Bennett said. “We’ll have to wait until 2026 to get a clearer reading on the US economy.”Additional reporting by Reuters