The Bank of Japan’s quarterly tankan survey showed large manufacturers’ business sentiment index rising to 15 in December from 14 in September, marking a four-year high since December 2021. This improvement reinforces market expectations for a rate hike by the central bank. Nonmanufacturers’ index held steady at 34.
The Bank of Japan released its quarterly tankan survey on December 15, showing the business sentiment index for large manufacturers at plus 15 for the December quarter, up from plus 14 in September. This marks the third consecutive quarter of improvement and the highest reading since December 2021, aligning with median market forecasts.
The index for large nonmanufacturers remained unchanged at plus 34 from September, near its strongest level since the early 1990s. A positive reading indicates more firms perceive conditions as favorable than unfavorable.
The results reinforce expectations that the BOJ will raise interest rates at its December 18-19 meeting, as firms appear to be weathering the impact of higher U.S. tariffs for now. Masato Koike, senior economist at Sompo Institute Plus, said, “All in all, the tankan backs up dominant market views the BOJ will raise rates in December. Unless a huge shock hits the economy or markets, it is likely to proceed with a hike.”
However, companies anticipate a worsening of conditions in the next three months, citing concerns over escalating U.S. tariffs, soft consumption, and labor shortages. A BOJ official noted that while uncertainty over U.S. trade policy has eased, higher prices are curbing consumption amid a tight labor market—the tightest since 1991 during Japan’s asset bubble era.
Firms project a 12.6% increase in capital expenditure for the fiscal year ending March 2026, exceeding the median forecast of 12%. Sales prices rose in the fourth quarter and are expected to continue increasing, supported by solid demand allowing cost pass-through. Sources indicate the BOJ is poised to lift its short-term policy rate to 0.75% from 0.5%. Corporate inflation expectations stand at 2.4% over one, three, and five years, anchoring around the BOJ’s 2% target. Japan’s economy contracted in the July-September quarter due to falling exports but is forecast to rebound this quarter with recovering shipments and output.
