Full Breakdown
Japan’s Tankan Survey Shows Manufacturer Confidence Peaks, Non-Manufacturers Slip
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Core Findings of the September Tankan
The Bank of Japan released its quarterly “tankan” survey on October 1, covering responses collected from August 26 through September 30. The diffusion index (DI) for large manufacturers rose to +24, up from +22 in the June survey, marking the highest reading since March 2018 and the sixth consecutive quarterly improvement. By contrast, the DI for large non-manufacturers fell to +35, down from +37 in June, the first decline in five quarters. Both groups expect business conditions to deteriorate over the next three months, reflecting lingering uncertainty from the Middle-East conflict.
Background and Recent Monetary Policy
Japan’s economy has been pressured by soaring oil prices after the war in Iran closed the Strait of Hormuz, pushing Brent crude to about $98 a barrel. The yen remains weak, trading near 160 per U.S. dollar, well above the 110 level of five years earlier. In response, the Bank of Japan raised its policy rate to 1.25 % on September 18, a 31-year high, and signalled readiness for further hikes to curb inflation.
Data and Statistics
- Manufacturers’ DI: +24 (actual) vs. market forecast of +25.
- Non-manufacturers’ DI: +35 (actual) vs. forecast of +36.
- Corporate inflation expectations: 2.6 % over three years and 2.5 % over five years, flat to three-month-earlier forecasts.
- Capital expenditure plans: Large firms’ planned capex up 11.3 % year-on-year in the September survey (down slightly from 11.5 % in June).
- Market pricing: Investors assign an 82 % probability to a rate increase in December, according to Totan ICAP data.
Official Statements & Responses
- BOJ Governor Kazuo Ueda highlighted the elevated inflation outlook, noting that the three-year and five-year forecasts remain above the 2 % target and therefore “convince” him that underlying inflation is nearing the goal.
Conflicting Reports & Gaps
Forecasts from private think tanks expected the manufacturers’ DI to reach +26, while the survey posted +24, falling short of the median analyst estimate of +25. Similarly, expectations for non-manufacturers were for a DI of +36, yet the actual reading was +35. The sources do not explain the precise reasons for these shortfalls beyond general references to higher oil prices and cost pressures.
Verbatim Quotes
- “I believe the split in business sentiment between manufacturers and non-manufacturers is due to the impact of higher oil prices,” — Takahide Kiuchi, executive economist at Nomura Research Institute
What’s Next
The Bank of Japan will hold a two-day policy meeting later in October, after which markets will assess whether the December rate hike materialises. Continued monitoring of corporate funding conditions and inflation expectations will shape the central bank’s stance amid persistent energy-price volatility and a weak yen.