Japanese companies are showing continued appetite for bank financing despite rising borrowing costs, offering an important signal ahead of the Bank of Japan’s next policy meeting. In its October survey, the central bank found that loan demand had strengthened across large, medium-sized and small firms over the previous three months.
The diffusion index for loan demand among large companies rose to +5 from +2 in the previous survey. Medium-sized and small firms both registered +1, recovering from readings of -2. These figures measure the balance of banks reporting stronger rather than weaker demand; they do not represent percentage growth in lending.
The resilience matters because stronger borrowing demand can indicate that businesses still see reasons to invest, expand operations or finance working capital even as monetary policy tightens. But it also complicates the central bank’s task: if credit demand remains firm, higher interest rates may take time to restrain economic activity and inflation. The survey alone cannot establish how much borrowing is being used for new investment rather than routine financing.
The key question is whether stronger demand persists as higher rates filter through to corporate balance sheets. For policymakers, the latest results suggest that financial conditions may not be cooling business appetite as quickly as a simple focus on interest-rate increases would imply.
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