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Coffee has been associated with a reduced risk of developing diabetes. Caffeinated and decaffeinated coffee may have components other than caffeine that reduce blood glucose concentrations. But take the caffeine out of the coffee, and the caffeine will increase blood sugar up to 8% according to a recent study. This one study was conducted on 10 people with type 2 diabetes, using caffeine capsules. The dose was an equivalent of drinking 4 cups of coffee.
Coffee also contains minerals such as magnesium and chromium, which help the body use the hormone insulin, which controls blood sugar (glucose). In type 2 diabetes, the body loses its ability to use insulin and regulate blood sugar effectively. It's probably not the caffeine, though.