Manufacturing Confidence Reaches Highest Level Since 2021
September’s survey of Japan’s large manufacturers revealed a rise in the business sentiment index to +21, marking the strongest confidence since December 2021 and up from +18 in August. This reflects steady improvement in the manufacturing sector’s overall health, with the electronics industry showing particularly robust performance. Non-manufacturing confidence also increased slightly to +29, remaining within its 2025 range.
The survey, conducted between August 26 and September 4, received responses from 224 out of 510 large companies surveyed. The index is calculated as the difference between optimistic and pessimistic responses—positive figures indicate an overall optimistic outlook.
Electronics Sector Drives Manufacturing Growth
The manufacturing uplift was primarily fueled by the electronics sub-sector, whose sentiment index surged from +24 to +39. Company executives attributed this strength to sustained demand for data center-related products, underpinned by capital expenditure growth linked to artificial intelligence applications. This continues to support strong orders for semiconductors, testing equipment, and related components. Other manufacturing segments showed mixed results, with precision machinery steady at +29, metal products rising slightly to +26, and textile and pulp sectors turning positive at +13 after previously hovering near zero. The steel and non-ferrous metals sectors remain in negative territory at -13.
Stable Services Sector with Activity in Real Estate and Transport
Within non-manufacturing industries, confidence indices for real estate and construction rose from +32 to +37, while transport and utilities climbed from +25 to +33. Conversely, information and communications experienced a pullback from +33 to +21, and retail rebounded from +9 to +18. Real estate leaders noted that despite increased borrowing costs, landlords continue to raise rents, indicating sustained pricing power in the property market.
Outlook and Emerging Risks for the Coming Quarter
Looking ahead to the next three months, manufacturing confidence is projected to rise further to +27, with non-manufacturing expected to hold steady at +27. Survey respondents flagged geopolitical tensions in the Middle East, rising raw material prices, and subdued domestic consumption as key uncertainties potentially weighing on future business conditions.
Distinguishing the Reuters Tankan from BOJ’s Official Survey
Both the Reuters Tankan and the Bank of Japan’s (BOJ) official Tankan survey use diffusion indices to gauge corporate sentiment, but differ in scope and frequency. The BOJ’s quarterly survey covers approximately 9,000 to 10,000 firms and carries more statistical weight, with releases every April, July, October, and January. In contrast, the Reuters Tankan is a monthly private-sector survey sampling around 500 large companies, serving as a more immediate but less comprehensive indicator.
Due to its timeliness, the Reuters Tankan is often used to anticipate the BOJ’s official Tankan results, although sample and methodological differences can lead to divergences, especially at market turning points.
Market Implications of Rising Manufacturing Confidence
The steady improvement in manufacturing sentiment, supported by AI-driven capital expenditures, offers a data point favoring the Bank of Japan’s monetary policy normalization efforts. While these developments may provide some support to the yen, ongoing Middle East geopolitical risks, fluctuating input costs, and varied domestic consumption performance suggest cautious market positioning toward the currency and equities.
The Nikkei 225 could benefit from stable corporate confidence but may face constraints on upside momentum due to expectations of policy tightening. Market participants generally view this survey as a leading indicator ahead of the BOJ’s forthcoming quarterly Tankan release.