Risk Shift as Revealed in the Bank of Japan’s “Main Opinion”

■ The "Main Opinions" from the September meeting indicate a gradual shift in risk assessment from "downward growth" to "upward inflation."   

■ The September Tankan showed strong business sentiment, prompting the Bank of Japan to consider the timing of an interest rate hike. 
 
   The "Main Opinions" from the Bank of Japan's monetary policy meeting, held on September 18 and 19, were released on September 30. While the policy rate remained unchanged at that meeting, members Takada and Tamura advocated for a rate hike. The "Main Opinions" acknowledged the "generally strong" economic situation but also included discussions of "businesses actively raising prices," in addition to the upward inflation risks noted by dissenting members. Regarding risk assessment, some still emphasized monitoring the "extent of the US economic downturn" and remaining vigilant against downward growth risks caused by uncertainty surrounding US tariffs. However, there was also a growing concern that "the cost of waiting would gradually increase if rate hikes were delayed," indicating a shift in policymakers' focus toward upward domestic inflation risks. 

 
   In their comments on future policy operations, some members suggested that, if the economic outlook remains stable, "the policy rate level should be adjusted with a certain degree of cyclicality," signaling increasing support for a rate hike. At the same time, some voices emphasize the need to verify whether companies maintain their proactive management stance. Amid ongoing uncertainty about US tariffs, the Bank of Japan will closely monitor the potential for an imminent economic downturn and observe how companies respond to tariff pressures. 

 
   Against this backdrop, the September Tankan survey, released today, shows that business sentiment remains resilient, generally increasing the likelihood of further interest rate hikes. The Business Sentiment Index (DI) for large manufacturing companies (up 1 point month-over-month) and for large non-manufacturing companies (unchanged) remain high at 14. This is primarily due to the late July US-Japan tariff agreement and the yen's depreciation exceeding corporate expectations, which supported corporate earnings. While the Outlook DI declined due to concerns about a worsening global economy and rising labor costs—the DI for large manufacturing firms fell to 12 (down 2 points from the recent period), and for large non-manufacturing firms, it declined to 28 (down 6 points)—the overall outlook remains relatively cautious. At the same time, the full-scale 2025 operating profit plan (projected to decrease by 4.8% year-over-year) and equipment investment plan (including land investment, an increase of 8.4% year-over-year) have been revised upward. It is anticipated that equipment investment will continue its growth trend, supported by labor-saving investments driven by labor shortages.