Japanese companies cited easing uncertainty over US trade policy and resilient demand in high-tech sectors as key factors supporting business sentiment, according to a senior Bank of Japan official’s comments on the tankan survey.
Key quotes
Companies cited lower uncertainty over US trade policy, a lower-than-expected impact of US tariffs, cost pass-through and strong demand for AI chips as positive factors for the business sentiment.
Companies cited the impact of US tariffs, higher labor costs, labor shortages and weak consumption due to higher prices as negative factors for business sentiment.
Companies cited cost overruns and strong demand as factors improving the business outlook.
Companies cited concerns about the impact of US tariffs, rising labor costs, and labor shortages as factors clouding the business outlook.
Some non-manufacturers expressed concern about the negative impact of rising prices on consumption, resulting in lower demand among inbound tourists.
Some retailers and real estate companies have expressed concern about the impact of deteriorating relations between Japan and China.
Market reaction
At press time, USD/JPY was down 0.03% on the day at 155.85.
Bank of Japan Frequently Asked Questions
The Bank of Japan (BoJ) is Japan’s central bank, which sets the country’s monetary policy. Its mission is to issue banknotes and implement currency and monetary controls to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked on an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflation environment. The bank’s policy relies on quantitative and qualitative easing (QQE), or printing banknotes to purchase assets such as government bonds or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and eased its policy by first offering negative interest rates and then directly controlling the yields of its 10-year government bonds. In March 2024, the Bank of Japan raised interest rates, effectively reversing its ultra-loose monetary policy stance.
The massive incentives offered by the bank caused the value of the Japanese yen to decline against major currencies. This process was exacerbated in 2022 and 2023 by the growing policy divergence between the Bank of Japan and other major central banks, which chose to increase interest rates sharply to combat decades-long high levels of inflation. The Bank of Japan’s policy led to a widening of the spread with other currencies, which led to a decline in the value of the Japanese yen. This trend was partially reversed in 2024, when the Bank of Japan decided to abandon its overly accommodating policy stance.
The weakness of the Japanese yen and rising global energy prices led to an increase in Japanese inflation, which exceeded the Bank of Japan’s target of 2%. The prospect of higher salaries in the country – a key element fueling inflation – also contributed to the move.
