BOJ Tankan Results Deteriorate: Trump’s High-tariff Policy Casts Dark Shadow over Economy

Editorial

15:43 JST, April 3, 2025

The outlook for the Japanese economy has become increasingly uncertain as U.S. President Donald Trump recklessly imposes his high-tariff policy. The Japanese government and the Bank of Japan must increase their vigilance and take measures to prevent the economy from taking a downturn.

The central bank has released the results of its Tankan quarterly economic survey for March. The Tankan diffusion index indicates corporate business confidence. The index for large manufacturing companies, a leading indicator, was 12, down 2 points from the previous quarter, marking the first deterioration in four quarters.

In the Tankan survey, the entire economy, including the nonmanufacturing sector, can be confirmed to be on a moderate recovery trend. Corporate performance was strong, especially among large companies, and corporate capital investment remains firm as well. However, there are concerns that the high-tariff policy of the United States has begun to cast a dark shadow over business confidence in the manufacturing sector.

The diffusion index deteriorated in 11 of the 16 business categories in the manufacturing industry, including “petroleum and coal products,” “textiles” and “chemicals.”

In particular, the “iron and steel” index was minus 18, a significant drop of 10 points from the previous quarter. This is because the U.S. government imposed an additional tariff of 25% on steel and aluminum products in March, and Japanese manufacturers were included in the list.

As many companies had completed their Tankan responses by mid-March, factors such as the impact of tariffs on automobiles have not been fully reflected. If the high tariffs are actually implemented as planned, further deterioration in business confidence will be inevitable.

The BOJ needs to thoroughly inspect the economy and price developments and carefully judge the timing of additional interest rate hikes.

Although the economy is continuing to recover, the reality is that households actually feel that they are struggling with their budgets as wage increases cannot keep up with price hikes for rice, food and other commodities. The transition to a growth-oriented economy in which both wages and investment increase must not be derailed.

At a press conference on April 1, Prime Minister Shigeru Ishiba expressed his intention to establish special consultation sections in 1,000 locations nationwide to assist small and midsize companies with issues such as cash flow, with tariffs on automobiles in mind. All possible measures should be taken to support the automobile industry, which drives wage increases.

On the other hand, business confidence among large nonmanufacturing companies, which mainly rely on domestic demand, rose 2 points to 35. It was a positive sign that the figure marked its highest level in 33 years and seven months. In addition to the full-fledged recovery of visitors to Japan, even though labor and other costs have increased, companies are passing along the higher costs in their sales prices.

By category, the index for “accommodations, eating and drinking services” was 46. With the risk of a drop in exports increasing, it is important to work for business recovery led by domestic demand.

The issue is the serious labor shortage. The index for the employment situation reached its lowest level for labor supply since August 1991. It is vital for companies to facilitate investment in improving business efficiency and making labor-saving efforts so as not to miss out on demand.

(From The Yomiuri Shimbun, April 3, 2025)