The combination of firmer inflation expectations and a sentiment beat across nearly every Tankan category strengthens the case for the BoJ to keep normalising policy, particularly with big manufacturers' index at 22 against a Reuters poll of 16, one of the larger upside surprises in recent surveys. Five-year inflation expectations holding at 2.6% alongside the one-year reading pushing up to 2.7% supports the view that price pressures are becoming more entrenched rather than transitory, a key input for the BoJ's reaction function. The capex beat from large firms, against a backdrop of falling recurring profits, suggests companies are willing to keep investing through margin pressure, a constructive signal for yen-denominated growth assets. Watch USD/JPY against the survey's own assumed average of 152.57 for FY2026/27, since actual spot trading materially away from that level would flag firms' cost assumptions as stale.---Japan firms raised year-ahead inflation expectations to 2.7% in the BoJ's June Tankan, while big manufacturer sentiment beat forecasts at +22. (146 chars)Summary:Japanese companies expect consumer prices to rise an average 2.7% over the next year, up from 2.6% in the previous survey, according to the Bank of Japan's June TankanFirms expect annual inflation of 2.6% three years and five years from now, both up from 2.5% previouslyThe BoJ's headline sentiment index for big manufacturers rose to +22 in June, the highest since 2018, well above the Reuters poll estimate of 16, with firms forecasting a dip to +17 by September. Big non-manufacturer sentiment came in at +37, the highest since August 1991, also beating the poll estimate of 35Small manufacturer sentiment more than doubled forecasts at +9 against an expected 4Large firms expect capital spending to rise 11.5% in FY2026/27, ahead of the 10.5% forecast, even as they project recurring profits falling 6.7%All firms surveyed see the dollar averaging 152.57 yen and the euro averaging 175.62 yen over FY2026/27The employment diffusion index remained deeply negative at -37, pointing to a persistent labour shortage across firms of all sizesJapanese companies have raised their inflation expectations across every time horizon measured in the Bank of Japan's closely watched June Tankan survey, even as corporate sentiment came in stronger than economists had forecast across nearly every category.Firms now expect consumer prices to rise an average 2.7% over the year ahead, up from 2.6% in the previous survey in March. Looking further out, companies see annual inflation of 2.6% both three and five years from now, also up from 2.5% in the prior reading. The BoJ has tracked corporate price expectations within the Tankan since March 2014, using the data as a key gauge of how entrenched inflation has become in household and business decision-making, a central input for the path of monetary policy.Sentiment data released alongside the inflation expectations showed a similarly firm picture. The headline index for large manufacturers rose to +22 in June, comfortably ahead of the Reuters poll median of 16 and up from +17 in March, though firms expect that reading to ease to +17 by September. Large non-manufacturers reported sentiment of +37, also beating the forecast of 35, while small manufacturers posted +9 against a median estimate of just 4, more than double what economists had pencilled in. Small non-manufacturers came in close to expectations at +15.The capital spending and profit data point to a more complicated underlying picture. Large firms expect capital expenditure to rise 11.5% in the fiscal year to March 2027, beating the 10.5% forecast, even as they project recurring profits falling 6.7% over the same period. Small firms were notably more cautious, forecasting an 8.3% drop in capex against an expected decline of 4.5%, a sharper pullback than economists had anticipated.The survey also captured currency assumptions underpinning corporate planning, with all firms surveyed expecting the dollar to average 152.57 yen and the euro to average 175.62 yen over the coming fiscal year. The employment diffusion index remained deeply negative at -37, little changed from -38 in March, underscoring that labour shortages remain a persistent feature of the Japanese economy regardless of firm size. The survey was conducted between May 28 and June 30, covering 9,141 companies, of which 1,636 were large firms. This article was written by Eamonn Sheridan at investinglive.com.