By Megumi Fujikawa
TOKYO--Sentiment among large Japanese manufacturers improved during the three months to June, adding to expectations for interest-rate increases by the Bank of Japan.
The main index for sentiment among large manufacturers was +13, compared with +11 in March, according to the central bank's quarterly tankan corporate survey released Monday.
That was slightly higher than economists' forecast for +12 and marked the highest level since March 2022.
The index represents the percentage of companies who said business conditions were favorable minus those who said conditions were unfavorable.
The tankan showed big manufacturers made their profit projections based on an assumption that the dollar would trade at 142.68 yen during the current fiscal year ending March 2025.
The forecast is far from the actual level of around 160.90 during Monday trading in Tokyo. That means their profits could be better than expected if the yen stays around the current rate because a weak yen lifts exporters' profits earned overseas.
Following the release of the central bank's survey, the yield on 10-year Japanese government bonds briefly rose to 1.08%. Some analysts and investors expect the Bank of Japan to raise interest rates as soon as at its next meeting on July 30-31.
However, the tankan showed some worrying signs. Sentiment among retailers deteriorated sharply in the second quarter. The yen's weakness has increased the cost of imports, while labor shortages and sluggish private spending have also hit the nonmanufacturing sector.
"It may be difficult for private consumption and the economy to recover unless the yen's depreciation stops," said Takahide Kiuchi, an economist at Nomura Research Institute and a former BOJ policy board member.
Kiuchi said the yen's moves would likely have a bigger influence on the BOJ's policymaking than before, although the bank may want to put off raising interest rates until September or later as it plans to announce details of its bond-purchase reduction at the July meeting.
Write to Megumi Fujikawa at megumi.fujikawa@wsj.com
(END) Dow Jones Newswires
06-30-24 2251ET
