TOKYO (AP) — For the fifth quarter in a row, business confidence among Japan’s largest manufacturers has grown, according to the Bank of Japan’s latest quarterly “tankan” survey, released Wednesday.
The survey’s diffusion index — which measures the gap between companies expecting favorable conditions and those feeling pessimistic — climbed to 22, up from 17 in the previous quarter. Among large non-manufacturing companies, such as those in the services sector, the index nudged slightly higher to 37, compared to 36 in the prior survey.
Fuel costs have risen due to the Iran war, adding to inflationary pressure across Japan. However, crude oil prices have eased somewhat since the United States and Iran reached an interim agreement to end the conflict.
While a weakened yen boosts the value of export earnings when converted back into Japanese currency — a significant advantage for the country’s major exporters — that benefit is increasingly being offset by rising energy costs. Japan relies on imports for nearly all of its oil and gas, and the yen’s recent slide to near a 40-year low has intensified those concerns amid elevated oil prices.
As of Wednesday, the U.S. dollar was exchanging at roughly 162 yen.
Last month, the Bank of Japan raised its key interest rate to 1%, reaching its highest level in three decades. The central bank cited the pressures of a weak yen and higher prices as driving factors. This move is part of a broader effort to normalize monetary policy following decades of keeping rates at or near zero.
Despite long-term structural challenges — including a persistent labor shortage tied to an aging and shrinking population — analysts say Japan’s economic indicators, including investment levels, remain relatively solid.
Naomi Fink, Chief Global Strategist and Chief Economist at Amova Asset Management, offered this assessment of the tankan results: “Sales remain firm, especially for large enterprises, but profits are expected to weaken.”
Fink added, “Fixed investment plans are strong for large and mid-size firms but less so for small firms.”
