Japan’s Q4 Tankan survey delivered a broadly supportive signal for the economy, reinforcing expectations that the BoJ will proceed with rate normalization. The large manufacturing index rose from 14 to 15, in line with expectations, marking a third consecutive quarterly improvement and the strongest reading since December 2021. The result suggests manufacturers have so far weathered the impact from higher U.S. tariffs better than feared.
Sentiment among non-manufacturers was less impressive, with the index unchanged at 34, falling short of expectations for a modest uptick. Even so, the divergence does not point to a meaningful deterioration in overall conditions, as services confidence remains elevated relative to historical norms.
Capital spending intentions added to the constructive tone. Large firms now plan to increase investment by 12.6% in the current fiscal year ending March 2026, slightly above market expectations of 12.0%.
The survey also indicated firms expect inflation to average 2.4% across one-, three-, and five-year horizons, suggesting expectations are stabilizing around the BoJ’s 2% target.
With tariff uncertainty easing and manufacturing sentiment holding firm, the survey supports the dominant market view that BoJ is positioned to raise rates in December, even as the pace of tightening beyond that remains gradual.
