BoJ Tankan: Manufacturing Sentiment Climbs to Highest Since 2018, Outlook Turns More Cautious

Japan’s business confidence improved more than expected in the second quarter, with the Bank of Japan’s Tankan survey showing sentiment among large manufacturers rising from 17 to 22 in June, well above the market consensus of 16. The index increased for a fifth consecutive quarter and reached its highest level since March 2018, underscoring the resilience of Japan’s industrial sector despite heightened geopolitical uncertainty. Confidence among large non-manufacturers also edged up from 36 to 37, marking the first improvement in five quarters.

The BOJ attributed the strength largely to robust demand for semiconductors and artificial intelligence-related products, which continued to support a broad range of technology industries. Officials also noted that more companies were successfully passing higher raw material costs on to customers, helping to support profitability. At the same time, some manufacturers benefited from front-loaded orders as customers sought to secure supplies during the Middle East conflict, even as businesses remained concerned that supply chains could face further disruptions.

Despite the stronger current assessment, firms became more cautious about the months ahead. Large manufacturers expect the business conditions index to ease back to 17 by September, while large non-manufacturers project a sharper decline to 28. Notably, most survey responses were collected before the preliminary US-Iran peace agreement, meaning respondents were still evaluating conditions when geopolitical tensions and energy prices were elevated. The results suggest Japan’s corporate sector entered the second half of the year from a position of strength, but remains mindful that some of the recent boost from AI demand and precautionary stockpiling may prove temporary.

Full BoJ Tankan release here.