Japanese Business Sentiment Hits Highest Level Since 1991 Amid Economic Recovery


  • Wednesday’s quarterly “tankan” survey showed a significant improvement in the sentiment of big non-manufacturers, reaching a level not seen since 1991.
  • Marcel Thieliant, head of Asia-Pacific at Capital Economics, suggests this could be a reason for the Bank of Japan to reconsider their ultra-loose monetary policy due to signs of tightening labour market conditions.
  • The tankan survey revealed that big manufacturers’ sentiment has improved for the third consecutive quarter, with the headline index rising to +12.
  • Furthermore, automakers’ mood has positively increased, signalling manufacturers are reaping the benefits of a weak yen and easing supply constraints.
  • Despite the optimism, the global outlook remains gloomy, with big manufacturers and non-manufacturers expecting conditions to worsen three months ahead.

Improved Sentiment for Big Non-Manufacturers

There’s a noticeable growth in the sentiment of big non-manufacturers. An increase to +30 was reported from +27 in the quarterly tankan survey released Wednesday. This marks the seventh continuous quarter of improvement, reflecting the highest level since November 1991. The index surpasses the median market prediction of +27.

“The mood of non-manufacturers has significantly been lifted by the post-pandemic pent-up demand and a recovery in inbound tourism. There are no signs of consumption faltering,” said Yasunari Ueno, chief market economist at Mizuho Securities.

Forecasts and Fiscal Expectations

In the face of a bleak global outlook, big businesses forecast conditions to worsen three months ahead. However, capital expenditure is expected to increase by 13.5% in the current fiscal year ending in March 2024 – surpassing the median market forecast for a 12.4% increase.

The Role of the Bank of Japan

The Bank of Japan (BOJ) will have to carefully analyze these statistics for signs of sustainable increases in prices and wages, as this would warrant a sustainable hit on its 2% inflation target. This is crucial for ending their ultra-easy policy.

The tankan survey also revealed expectations of inflation exceeding 2% in one-, three- and five-years’ time, with businesses stating that labour conditions remain tight.

“The latest tankan survey shows no obstruction for the BOJ to conclude negative interest rates,” said Ueno. The BOJ board will hold its next policy-setting meeting on Tuesday. The central bank is expected to release new quarterly growth and inflation forecasts at a rate review on Jan. 22-23.

Given the observed trends, it could impact foreign exchange and trading practices, specifically favoring high-performing assets like the yen in the future.

PIP Penguin