According to the Bank of Japan’s September Tankan summary, companies’ appetite for capital investment remains high, while the non-manufacturing DI deteriorated due to rising costs. Markets are watching the outlook for additional rate hikes and the impact of interest rates.
The overview of the Tankan survey released by the Bank of Japan showed that, among the DIs indicating business sentiment at companies nationwide, the DI for large manufacturers remained on an improving trend, while the DI for large non-manufacturers deteriorated against a backdrop of rising costs. It also confirmed that price expectations and future capital investment plans remained at high levels.
The deterioration in the non-manufacturing DI was attributed to higher costs, including raw material and labor costs, which appear to be weighing more heavily on companies’ earnings outlooks and sentiment. At the same time, companies’ appetite for capital investment with a view to the future remains firm, and plans for business expansion and equipment upgrades remain at high levels.
The Tankan results are regarded as important input when considering the operation of monetary policy, and market participants expect the pace of additional rate hikes and changes in the interest-rate environment to influence future decisions. Companies’ high price expectations and strong investment appetite could also spill over into the real estate market, which is particularly sensitive to interest-rate movements.
For participants in the real estate and housing loan markets, higher interest rates directly translate into higher borrowing costs and may prompt a review of cash flow and repayment plans. Attention is also warranted because rising costs in the non-manufacturing sector, including construction materials and labor costs, could affect operations on the ground.