BOJ’s Sept. Tankan Survey Improves: Caution Still Needed on Future Economic Outlook

Editorial

16:09 JST, October 2, 2025

While Japan has managed to weather the adverse effects of U.S. President Donald Trump’s tariff policy, there are more than a few causes for concern. It is hoped that the government and the Bank of Japan will formulate necessary measures to vitalize the Japanese economy.

The central bank has released the results of its Tankan quarterly economic survey for September. The diffusion index indicates corporate business confidence. The index for large manufacturing companies, which is a leading indicator, was 14, up 1 percentage point from the previous quarter, marking an improvement for the second consecutive quarter.

The latest Tankan survey was the first conducted after the Japan-U.S. tariff negotiations concluded and a 15% tariff rate, in principle, was applied regarding “reciprocal tariffs” and tariffs on automobiles.

Uncertainty surrounding tariffs, which had been the biggest risk factor for the Japanese economy, was dispelled to a certain extent, leading to the improvement in business confidence.

The performance of large corporations remains at a high level, and the Nikkei Stock Average surpassed 45,000 points for the first time. It can be said that the survey confirmed the economy is continuing to gradually recover.

Improvement was seen in nine out of 16 sectors in the manufacturing industry, for whom exports are relatively large parts of their businesses. The index of the automobile sector improved by 2 points to 10, while that of the shipbuilding and heavy machinery sector, which has been passing along the increased costs in their sales prices, rose 9 points to 36.

It is crucial for companies to spread the benefits to households by continuing aggressive investment and boldly increasing wages.

However, vigilance must be maintained regarding future economic outlook. While the tariff rates dropped from the initial level, which would have delivered a serious blow, high tariffs on exports to the United States remain unchanged. Unless companies can pass the tariff costs along in their export prices, it will become a factor pressing their corporate earnings.

Business confidence has already deteriorated in some sectors, including iron and steel. The government should swiftly implement support measures to help corporations procure funds and rebuild production networks, among other steps.

Meanwhile, business confidence among large nonmanufacturing companies that mainly rely on domestic demand, such as service businesses, maintained a high level at 34.

However, weakness in consumer spending due to prolonged high prices is concerning. The index of the accommodation, eating and drinking sector fell by 19 points to 26.

Wage increases have not kept pace with rising prices, and real wages have not been able to stably turn positive for more than three years. One reason is likely due to the fact that consumers have become thriftier and are refraining from eating out.

In the upcoming presidential election for the ruling Liberal Democratic Party, measures against high prices have become a major point of discussion. Yet, the candidates have only proposed immediate measures, such as cash handouts and tax cuts, and have failed to present fundamental solutions to the issue.

The new administration will need to urgently implement measures against high prices that will effectively support low-income earners and others in need. A solid growth strategy is also essential to achieve stable wage increases. It will be important for the BOJ to analyze the Tankan results and judiciously determine the timing of interest rate increases.

(From The Yomiuri Shimbun, Oct. 2, 2025)