Quarterly ‘tankan’ survey shows slight improvement as Bank of Japan weighs a rate hike

A quarterly survey of major Japanese manufacturers released Monday shows business sentiment improving to its best level in four years, even after President Trump raised tariffs on goods from the U.S. ally to a baseline level of 15%.

The Bank of Japan is bound to take the results of its quarterly “tankan” survey into account during a policy meeting this week, when it is expected to raise its benchmark interest rate. Analysts said the stronger results may sway the BOJ toward pressing ahead with a 0.25 percentage point rate hike that will take the key rate to 0.75%.

That expectation hit the price of bitcoin early Monday, as it dipped below $88,000 from about $92,000. Higher rates would likely lead Japanese investors to shift funds back home, sapping demand for cryptocurrencies.

While the U.S. Federal Reserve has been trimming rates to counter a weak jobs market, Japan’s central bank is moving in the other direction as it contends with inflation and a weak currency. The economy contracted at an annualized rate of 2.3% in July-September.

Still, the BOJ survey showed the measure of major manufacturers expressing optimism rose to 15 from 14 in the last quarter, the highest level in four years. The index shows 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,” Abhijit Surya of Capital Economics said in a report. “It showed that business conditions are improving, profit margins remain elevated and firms are upbeat about their investment intentions.”

The latest deal between Japan and the Trump administration set tariffs on its exports to the U.S. at 15%, down from an earlier plan for a 25% tariff. To win the agreement, among other things Japan promised to invest $550 billion in the United States.

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%, above the central bank’s target range.

The Bank of Japan has kept its key interest rate near or below zero for years, trying to spur faster economic growth by keeping borrowing costs very low.

Its policymaking has been complicated by the fact that Japan’s population is shrinking and aging rapidly. That has caused labor shortages that have only slowly pushed wages higher. That should lead consumers to spend more, but increases in income have lagged behind inflation, denting their appetite for spending.

Prime Minister Sanae Takaichi has pledged, as have her predecessors, to revive the economy. Last month, her cabinet approved a 21.3 trillion yen ($135.4 billion) stimulus package to spur growth through expansionary government spending and relieve the impact of higher prices.