Japan's major lenders are seeing stronger demand for funds from corporate borrowers than three months ago, a Bank of Japan survey showed on Thursday — a sign the central bank's recent interest-rate hikes have yet to tighten financial conditions, Reuters reported.

Source: Reuters

In the BOJ survey, conducted from September 9 to October 13, the diffusion index comparing banks that saw corporate fund demand rise against those that saw it shrink stood at +3, up from -1 in the previous survey three months earlier. A positive reading means more banks reported rising demand than falling demand.

Why the survey matters for the next hike

Financial conditions are becoming increasingly important in predicting the timing of the BOJ's next rate hike. The central bank has said it will scrutinise how its past increases are affecting corporate funding to judge how close its policy rate is to a level it considers neutral for the economy.

The BOJ raised its policy interest rate to a 31-year high of 1.25% on September 18 and signalled a pivot towards policy focused on preventing inflation from overshooting its 2% target. Loose funding conditions despite that hike suggest companies are still borrowing readily — evidence the BOJ will weigh alongside inflation and wage data before its next move.