The Bank of Japan's quarterly Tankan survey released on Thursday showed that the business sentiment index for large manufacturers rose to 24 in September from 22, marking a sixth consecutive quarter of improvement and reaching 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 most closely watched data points for the Bank of Japan.

The sentiment index for large non-manufacturers edged down to 35 from 37.

A positive reading means more companies view business conditions as "favorable" rather than "unfavorable."

The latest Tankan report shows that the resilience of Japanese companies is still 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, while rising real wages have supported demand for services in the non-manufacturing sector.

Against this backdrop, Thursday's survey may reinforce market expectations that the Bank of Japan will raise interest rates again before December.

The Bank of Japan also pays close attention to corporate price expectations.

Companies expect the annual inflation rate five years from now to be 2.5%, 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 negotiations.

People familiar with the matter said Iranian officials are privately pessimistic about reaching an agreement to end hostilities and reopen waterways before the U.S. midterm elections in November.

The continued weakness of the yen may also become a key factor.

Despite attempts by U.S. and Japanese authorities to reverse the trend, the yen is still hovering near the critical threshold of 160 per dollar, trading 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, which gives them greater room to raise prices after years of cost-cutting and wage stagnation.

The Japanese 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 with 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 Bank of Japan, told Bloomberg last week that the latest Tankan report will become a key basis for the Bank of Japan's decision on whether to raise interest rates at the end of the month.

He believes that the probability of the Bank of Japan raising interest rates when it sets policy on October 30 is as high as 30%.