Japan’s Business Sentiment Reaches Five-Quarter High in Quarterly Tankan Survey Amid Mixed Economic Signals`]

Japan’s Business Sentiment Reaches Five-Quarter High in Quarterly Tankan Survey Amid Mixed Economic Signals`]

TOKYO — Business sentiment among Japan’s major manufacturers improved for a fifth consecutive quarter, according to data released by the Bank of Japan in its quarterly “tankan” survey on Wednesday.

The survey’s diffusion index, which measures the percentage of respondents reporting favorable conditions minus those reporting unfavorable ones, rose to 22 from 17 in the previous quarter. For large non-manufacturers, such as service companies, the index edged up to 37 from 36.

The tankan survey serves as an indicator of corporate outlooks, measuring the balance between optimistic and pessimistic responses.

Elevated fuel costs driven by the Middle East conflict have contributed to inflationary pressures in Japan, though crude oil prices have since retreated following a U.S.-Iran interim agreement. While the weakening yen typically boosts export revenues when converted to yen, benefiting Japan’s large multinational corporations, this advantage is increasingly offset by surging energy expenses.

Japan imports nearly all of its oil and gas, and the yen’s recent decline to levels not seen in nearly 40 years has intensified concerns amid historically high oil prices. The U.S. dollar was trading at approximately 162 yen on Wednesday.

Last month, the Bank of Japan raised its benchmark interest rate to 1%, a three-decade high, citing challenges posed by the weak yen and rising prices. This move reflects the central bank’s ongoing effort to normalize monetary policy after maintaining interest rates near zero for decades.

Economists note that while Japan’s economic indicators remain robust despite structural issues such as a persistent labor shortage linked to an aging and shrinking population, certain sectors face headwinds.

“Sales remain solid, particularly for large enterprises, but profit margins are expected to contract,” said Naomi Fink, chief strategist and chief economist at Amova Asset Management, regarding the tankan findings. “Fixed investment plans are strong among large and mid-sized firms but lag for smaller companies.”

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