BOJ’s Tankan Survey Improves: Environment is Being Established for Wage Increases

Editorial

14:51 JST, December 17, 2025

Japanese companies appear to be overcoming the blow dealt by U.S. President Donald Trump’s tariff policies, their biggest cause of concern. It is hoped that they will proceed with substantial wage increases in light of the improved business environment.

The Bank of Japan has released the results of its Tankan quarterly economic survey for December, in which diffusion indexes indicate corporate business confidence. The index for large manufacturing companies, which is a leading indicator, was 15, up 1 percentage point from the previous quarter. This represented the third consecutive quarter of improvement and was the highest level in four years.

The real gross domestic product for the July-September 2025 period recorded its first decline in six quarters. However, this Tankan survey likely has confirmed that the economic slowdown is temporary and that the economy continues to be robust.

The manufacturing industry, which has a high export ratio, seems to be weathering the negative effects of Trump’s tariff policies. The improvement in the index extended to nine out of 16 industries.

Driven by robust semiconductor demand for generative artificial intelligence, the chemical industry, which supplies materials, improved 7 points to 22. The electrical machinery industry rose 1 point to 17.

The country’s core industry of automobiles only dropped by 1 point to 9. The impact on performance likely will be smaller than anticipated, due to such measures as passing along the tariff costs in their transaction prices.

As the uncertainty brought by high tariffs is being dispelled to a certain extent, it can be said that the environment is being established for wage increases.

Looking ahead to next spring’s shunto wage negotiations, large companies will have to take the lead in pursuing wage increases. It also is a challenge for small and midsize enterprises, which account for about 70% of the nation’s employment, to secure the funds for wage increases. Large companies should strive to make it possible for smaller businesses to pass on rising labor costs and others to transaction prices.

The Tankan survey index indicating corporate labor shortages stood at minus 38, the lowest level since the August 1991 survey. Pursuing further wage increases also is essential to secure human resources.

It is also crucial for the government and the central bank to implement appropriate policies in light of the trend of wage increases.

This week, the Bank of Japan is likely to consider raising interest rates to around 0.75%. As wages and prices rise and the economy transitions to growth, higher interest rates are a natural consequence. The hope is that the government will also accelerate strategies to boost corporate investment.

Large nonmanufacturing firms, which rely heavily on domestic demand such as tourism and food services, maintained a high level at 34 in the Tankan survey.

Japan-China relations have deteriorated over Prime Minister Sanae Takaichi’s remarks at the Diet regarding a potential Taiwan contingency. However, the accommodations, eating and drinking services sector has not shown a noticeable decline. The index for small and midsize companies in the sector improved.

From a risk management perspective, the tourism industry will need to continue to devise ways not to rely excessively on China.

(From The Yomiuri Shimbun, Dec. 17, 2025)