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BoJ Tankan Hits 6-Year High, Outlook Signals Caution
Japan's Tankan large manufacturers index rose to 22, the highest since 2018, but the forward outlook eased. The July 31 BOJ meeting will test whether the central bank prioritizes current strength or cautious guidance.
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Japan's large manufacturers reported their best business conditions in more than six years. The Bank of Japan's Tankan survey for June showed the sentiment index for big industrial firms rose to 22 from 17, topping the median forecast of 16. That is the highest reading since March 2018 and the fifth consecutive quarterly increase.
The BOJ attributed the strength to strong demand for semiconductors and AI-related products, alongside some front-loaded orders as customers sought to secure supplies during Middle East tensions. The same forces lifted large non-manufacturers one point to 37, the first improvement in five quarters. More companies successfully passed higher raw material costs to customers, the BOJ said, which helped support margins.
The forward-looking components tell a different story. Large manufacturers expect the index to ease back to 17 by September. Non-manufacturers project a sharper decline to 28. Most responses were collected before the preliminary US-Iran peace agreement was announced, meaning respondents were still weighing elevated energy prices and supply-chain risks. If the peace deal holds, energy costs could fall and inflation expectations moderate, reducing pressure on the BOJ to hike. If it falters, the energy shock may persist, keeping the case for normalization alive.