MediumIV Macro Policy & Sovereign Debt1 October 2026, Thursday · 02:50 TRT (UTC+3)
Sentiment among Japan's large manufacturers rises for a sixth quarter
In the Bank of Japan's Tankan survey published on 1 October, the business conditions index for large manufacturers rose from +22 in June to +24. The index for large non-manufacturers fell from +37 to +35, and firms expect +21 for December.
According to the Bank of Japan's (BoJ) Tankan summary of 1 October, the business conditions index for large manufacturers stood at +24. The index is the share of firms reporting good conditions minus the share reporting bad ones. That is a rise of 2 points from +22 in June. The index for medium-sized manufacturers rose 6 points to +23, and for small manufacturers 5 points to +14. The index for large non-manufacturers fell 2 points to +35. The survey covered 9,104 firms between 26 August and 30 September, with a response rate of 99.4%.
Nikkei Asia wrote that sentiment among large manufacturers rose for a sixth consecutive quarter, supported by global demand driven by artificial intelligence. The same report says higher energy costs linked to tension in the Middle East are weighing on the economy. According to Securities.io, large manufacturers expect sales to rise 7.6% and current profits 13.6% in fiscal 2026. Large firms plan an 11.3% increase in fixed investment.
BoJ data show firms' dollar/yen assumption for fiscal 2026 rose from 152.57 in the June survey to 154.23. The euro/yen assumption rose from 175.62 to 177.86. Large manufacturers expect +21 in December, meaning firms foresee a 3-point decline next quarter. According to Securities.io, firms expect general prices to rise 2.6% one year ahead and 2.5% five years ahead.
Talay assessment
Bottom line
The Tankan shows AI demand still carrying Japanese manufacturing, but with signs of fatigue in services and in the outlook for next quarter. Strong profit and investment plans, along with price expectations above 2%, do nothing to weaken the BoJ's case for raising rates. The 3-point decline expected for December prices in the risks from energy costs and external demand.
Likely effects
- BoJ monetary policyUncertainWeeks
Firms expect prices to rise 2.6% one year ahead and 2.5% five years ahead. With inflation expectations above the BoJ's 2% target, the bank has grounds to keep tightening.
- Yen exchange rateUncertain1–6 months
Raising the dollar/yen assumption to 154.23 shows that companies are building a continued weak yen into their plans.
- Asian supply chainPositive1–6 months
Large firms' plans to raise fixed investment by 11.3% could support demand for semiconductor equipment and machinery.
Possibilities, ranked
- 1Strong factories, slow services50%
AI demand sustains manufacturing while energy costs weigh on services; the December Tankan comes in flat or slightly weaker.
Watch: The large manufacturers index holding in the +21 to +24 range in the December Tankan
- 2Broad decline30%
Energy prices and slowing external demand bear out firms' expectations, and the index falls to +21 or below.
Watch: A decline in non-AI items in Japan's export data
- 3New peak20%
AI investment keeps its pace and the manufacturing index rises again in December.
Watch: Gains in the electrical machinery and production machinery sub-indices
Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.
Market reaction
Indicators affected
- Large manufacturers index▲ +24
- Large non-manufacturers index▼ +35
- December outlook▼ +21