Bank of Japan Tankan Survey Shows Manufacturing Confidence at Highest Since 2018 Amid Cautious Outlook

In the second quarter, Japan’s business confidence rose more than anticipated, according to the Bank of Japan’s Tankan survey, which recorded a jump in sentiment among large manufacturers from 17 to 22 in June—exceeding the consensus forecast of 16. The index marked its fifth straight quarterly increase and the highest reading since March 2018, highlighting the robustness of Japan’s industrial sector amid rising geopolitical risks. Sentiment among large non‑manufacturers also inched up from 36 to 37, the first rise in five quarters.

The BOJ linked the improvement mainly to strong demand for semiconductors and AI‑related products, which have sustained a wide array of technology sectors. Officials also observed that an increasing number of firms are able to pass higher input costs onto customers, thereby bolstering profit margins. Concurrently, certain manufacturers have seen a surge in front‑loaded orders as buyers aim to lock in supplies amid the Middle East conflict, while many remain wary of potential further disruptions to supply chains.

Nevertheless, companies have grown more cautious about future conditions. Large manufacturers forecast a pullback in the business conditions index to 17 by September, while large non‑manufacturers anticipate a more pronounced decline to 28. The majority of responses were gathered prior to the preliminary US‑Iran peace agreement, so participants were still assessing an environment marked by heightened geopolitical tension and elevated energy prices. These findings indicate that Japan’s corporate sector began the second half of the year with solid footing, yet remains vigilant that the recent gains driven by AI demand and precautionary inventory building may be short‑lived.

Large Manufacturers Business Conditions
17
22
16

Large Non-Manufacturers Business Conditions
36
37
35

Large Manufacturers Outlook (September)
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17
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Large Non-Manufacturers Outlook (September)
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28
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