MNI: BOJ Tankan: Key Sentiment Rises, Solid Capex Plans

Japanese benchmark business sentiment rose slightly from three months earlier for a third consecutive quarter, while sentiment among major non-manufacturers was unchanged, the Bank of Japan’s December Tankan business sentiment survey released Monday showed.

The Tankan also indicated that capital investment plans by major and smaller firms this fiscal year remain solid and above historical averages, supporting the BOJ’s view that the virtuous cycle from income to spending continues to function.

The diffusion index for sentiment among major manufacturers stood at +15 in December, up from +14 in September and the highest level since December 2021. The index is expected to remain at +15 in March.

The sentiment index for major non-manufacturers was +34 in December, unchanged from September, and is projected to fall to +28 three months ahead.

The Tankan diffusion index is calculated by subtracting the percentage of companies reporting deteriorating business conditions from those reporting an improvement. A positive figure indicates that the majority of firms see better business conditions.

The sentiment index for smaller manufacturers rose to +6 in December from +1 in September, marking the first increase in three quarters and the highest level since March 2019. The index is expected to fall to +2 in March.

The sentiment index for smaller non-manufacturers rose to +15 in December from +14 in September, the first increase in four quarters and the highest level since June 2025. The index is projected to fall to +10 in March.

Business investment plans by major firms this fiscal year, a key driver of domestic demand, are projected to rise 12.6% year on year, revised up slightly from +12.5% in September and above the historical average.

Capital expenditure plans by smaller firms are expected to rise 0.1% this fiscal year, revised up from -2.3% in September and also above the historical average. Capex plans by smaller firms tend to be revised higher after initially negative forecasts at the start of the fiscal year.

The Tankan results are supportive of a rate hike this week. (See MNI BOJ WATCH: Board To Consider Hike, Maintain Half-year Pace)

A BOJ official told reporters that reduced uncertainty over trade impacts and a smaller-than-expected effect from trade policy were behind the improvement in sentiment.