Bank of Japan Q1 2025 Tankan report

• March big manufacturers index +12 (Reuters poll: 12) … this worsened for the first time in a year

• June big manufacturers index seen at +12 (Reuters poll: 9)

• March big non-manufacturers index +35 (Reuters poll: 33) … higher for the first time in half a year, and highest since August 1991

• June big non-manufacturers index seen at +28 (Reuters poll: 29)

• March small manufacturers index +2 (Reuters poll: -1) … 3rd consecutive quarter of improvement, highest since March 2019

• June small manufacturers index seen at -1 (Reuters poll: -3)

• March small non-manufacturers index +16 (Reuters poll: 15)

• June small non-manufacturers index seen at +9 (Reuters poll: 10)

• Japan all firms see dollar averaging 147.06 yen for FY2025/26

• Japan all firms see euro averaging 157.45 yen for FY2025/26

• Japan big manufacturers see FY2025/26 recurring profits +0.2%

• Japan big firms see FY2025/26 capex +3.1% (Reuters poll: 2.9%)

• Japan small firms see FY2025/26 capex -10.0% (Reuters poll: -3.3%)

• March all firms employment index -37

• March all firms financial condition index +10 vs Dec +12

• March big manufacturers’ production capacity index +3 vs Dec +3

• Japan big manufacturers see dollar averaging 147.35 yen for FY2025/26

More – a slight rise in inflation expectations:

• Japan firms expect consumer prices to rise 2.5% a year from now vs +2.4% in previous survey

• Japan firms expect consumer prices to rise an annual 2.4% three years from now vs +2.3% in previous survey

• Japan firms expect consumer prices to rise an annual 2.3% five years from now vs +2.2% in previous survey

This is not a bad report. the BoJ are considering further rate hikes (timing is the question!) and reports like this won’t worry them.

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The Reuters Tankan Index provides a monthly snapshot assessing Japanese business sentiment ahead of the quarterly report from the BoJ. For Q1 we’ve had:

January 2024:
In January, Japanese manufacturers’ sentiment declined for the first time in four months, with the index dropping to +6 from December’s +12. This downturn was attributed to concerns over weak demand from China and other global markets. Conversely, the service-sector index improved to +29 from the previous month’s +26, indicating a more positive outlook in domestic services

February 2024:
February saw manufacturers’ sentiment tumble into negative territory, with the index at -1, down from January’s +6—the first negative reading in 10 months. This decline reflected growing pessimism amid global economic uncertainties. The service-sector index also experienced a slight dip, decreasing to +26 from January’s +29, suggesting a modest softening in service-sector confidence.

March 2024:
In March, business sentiment among Japanese manufacturers worsened further, with the index remaining in negative territory at -1. This sustained pessimism was largely due to concerns over U.S. tariff policies and a sluggish Chinese economy. The service-sector sentiment index also declined to +25 from February’s +30, indicating continued challenges in the service industry.

These fluctuations highlight the sensitivity of Japan’s manufacturing and service sectors to international trade dynamics and global economic conditions during the first quarter of 2024.