Key facts
- Major Japanese manufacturers' business sentiment improved for a fifth consecutive quarter.
- The Bank of Japan's quarterly 'tankan' survey showed the diffusion index for large manufacturers rose to 22 from 17.
- Sentiment for large non-manufacturers edged up to 37 from 36.
- AI demand and commodity prices are driving the improvement in Japanese manufacturing sentiment.
- Rising energy prices due to a weak yen are beginning to counter export earnings benefits.
Major Japanese manufacturers' business sentiment has improved for a fifth consecutive quarter, reaching an eight-year high, according to the Bank of Japan's quarterly 'tankan' survey. The diffusion index for large manufacturers rose to 22 from 17, while the index for large non-manufacturers edged up to 37 from 36. This improvement is attributed to demand driven by AI and commodity prices. However, rising energy prices, exacerbated by a weak yen which has fallen to near a 40-year low against the dollar, are beginning to offset the benefits of higher export earnings. The Bank of Japan recently raised its benchmark interest rate to 1%, a three-decade high, to combat inflation stemming from these pressures. Analysts note that while sales remain firm for large enterprises, profits are expected to weaken, and fixed investment plans are strong for large and mid-size firms but less so for smaller ones.