Confidence among large Japanese manufacturers hits a more than eight-year high, expectations for a Bank of Japan rate hike heat up.

The Bank of Japan's quarterly Tankan survey released on Thursday showed that the business sentiment index for large manufacturers rose from 22 to 24 in September, improving for a sixth consecutive quarter and hitting the highest level in more than eight years, though slightly below the 25 expected by economists surveyed by Bloomberg. The survey is one of the BOJ's most closely watched data points. The sentiment index for large non-manufacturers edged down to 35 from 37. A positive reading means more companies consider business conditions "favorable" than "unfavorable." The latest Tankan report shows that the resilience of Japanese companies is continuing. Strong global demand for artificial intelligence has cushioned the impact of Middle East conflicts, keeping Japan's manufacturing PMI in expansion every month this year; rising real wages have supported service demand in the non-manufacturing sector. Against this backdrop, Thursday's survey may reinforce market expectations that the BOJ will raise interest rates again before December. The BOJ is also closely watching corporate price expectations. Companies expect an annual inflation rate of 2.5% five years from now, slightly down from 2.6% in the previous report but still at a high level. The survey was released as oil prices rose again amid renewed concerns over the lack of progress in U.S.-Iran talks. People familiar with the matter said Iranian officials are privately pessimistic about reaching an agreement to end hostilities and reopen the waterway before the U.S. midterm elections in November. The yen's continued weakness could also become a key factor. Despite efforts by U.S. and Japanese authorities to reverse the trend, the yen is still hovering near the key threshold of 160 per dollar, trading at around 157.70 in Tokyo on Thursday morning. In addition to strong AI demand, Japanese companies are also benefiting from increasingly entrenched price and wage increases, giving them greater room to raise prices after years of cost-cutting and wage stagnation. Japan's Ministry of Finance reported last month that corporate profits hit a record high in the second quarter. Teikoku Databank reported on Wednesday that the number of food and beverage items subject to price increases in September reached 4,965, more than double the same period last year. Kazuo Momma, former executive director in charge of monetary policy at the BOJ, told Bloomberg last week that the latest Tankan report will be a key basis for the BOJ's decision on whether to raise interest rates at the end of the month. He believes the probability of a BOJ rate hike when it sets policy on October 30 is as high as 30%.