A man uses a laptop on a street at a business district in Tokyo, Japan January 23, 2024. REUTERS/Kim Kyung-Hoon

By Leika Kihara

TOKYO (Reuters) -Confidence among big Japanese manufacturers improved slightly in the three months to September, a central bank survey showed on Wednesday, a sign the export-reliant economy was weathering the hit from U.S. tariffs, at least for now.

The outcome keeps alive market expectations the central bank could raise interest rates again as soon as this month.

The headline index measuring big manufacturers' business confidence stood at +14 in September, up from +13 in June and marking the highest level since December 2024, the "tankan" survey showed. It compared with a median market forecast for a reading of +15.

An index gauging big non-manufacturers' sentiment stood at +34 in September, unchanged from the level in June and matching a median market forecast.

"The latest Tankan survey confirms that Japan's economy is shrugging off trade tensions and supports our long-held view that the Bank of Japan will resume its tightening cycle this month," said Marcel Thieliant, head of Asia-Pacific at Capital Economics.

Big companies expect to increase capital expenditure by 12.5% in the current fiscal year ending in March 2026, the tankan showed, up from a 11.5% gain projected in June and above a market forecast for a 11.3% rise.

But big manufacturers and non-manufacturers expect conditions to worsen three months ahead, the survey showed.

"Firms from a wide range of sectors pointed to concern over the impact of U.S. trade policy," a BOJ official told a briefing on worsening sentiment among manufacturers.

Some firms also complained of rising labour costs, slowdown in demand from inbound tourism and the risk of higher prices hurting domestic consumption, the official said.

The tankan is among key data the BOJ will scrutinise in deciding whether to raise interest rates to 0.75% from 0.5% at its next meeting on October 29-30.

A hawkish board split at the BOJ's September meeting and calls for a near-term rate hike by a dovish policymaker have led markets to price in roughly a 60% chance of an October hike.

Japan's economy expanded an annualised 2.2% in the first quarter on robust consumption, underscoring the BOJ's view the country was on course for a moderate recovery.

U.S. President Donald Trump last month signed an executive order formalising the trade agreement with Japan, removing some worries in Tokyo about the implementation of the reduced tariff rate of 15% on key Japanese export items such as cars.

But exports and factory output slumped in August, a sign the pain from higher U.S. levies could intensify in coming months.

The BOJ ended a massive, decade-long stimulus programme last year and raised rates to 0.5% in January, on the view that Japan was on the cusp of durably hitting its inflation target of 2%.

While inflation has exceeded 2% for more than three years, Governor Kazuo Ueda has stressed the need to tread cautiously to scrutinise the extent to which tariffs and slowing U.S. growth could hit firms' profits and wage-hike appetite.

(Reporting by Leika Kihara; Editing by Sam Holmes)