Japan Q1 Business Mood Inches Higher

The Bank of Japan’s sentiment index for large manufacturers edged up to 17 in Q1 2026, beating market estimates of 16 and marking the highest level since Q4 2021. The uptick suggested Middle East conflict risks have yet to dent business morale. Confidence strengthened across firms producing pulp (44 vs 40 in Q4), electrical machinery (22 vs 21), processed metals (16 vs 10), general-purpose machinery (34 vs 27), production machinery (26 vs 16), motor vehicles (13 vs 9), and business-oriented machinery (15 vs 9). Meanwhile, sentiment held steady in iron & steel (-15), food & drinks (9), and shipbuilding (35). On the other hand, weaker readings came from textiles (-5 vs -4), lumber & wood (0 vs 7), petroleum (18 vs 36), and chemicals (14 vs 19). Simultaneously, large firms plan to lift capital expenditure by just 3.3% in Q1, sharply down from 12.6% previously and the softest rise since Q1 2023, reflecting high borrowing costs and intensifying geopolitical uncertainty.

The Bank of Japan’s sentiment index for large manufacturers edged up to 15 in Q4 2025 from 14 in Q3, improving for a third quarter and marking the highest print since Q4 2021, amid the yen’s sustained weakness and firm global demand, notably from the AI sector. The latest reading matched market estimates, with confidence remaining upbeat among firms producing lumber & wood (0 vs -8 in Q3), pulp (34 vs 26), petroleum (33 vs 0), iron & steel (-11 vs -14), food & drinks (9 vs 6), chemicals (22 vs 15), electrical machinery (17 vs 16), shipbuilding (41 vs 36), and processed metals (8 vs 0). At the same time, sentiment stayed stable for textiles (at 4), general-purpose machinery (at 27), and production machinery (at 17), but fell for motor vehicles (9 vs 10), and business-oriented machinery (13 vs 22). Large firms planned to lift capital expenditure by 12.6% in Q4, after a 12.5% rise in Q3, topping forecasts of 12%. This was the strongest rise in investment intentions in eight quarters.

The Bank of Japan’s index for large manufacturers edged up to 14 in Q3 2025 from 13 in Q2, improving for the second straight quarter and marking the highest reading since Q4 2024, as a trade deal between Tokyo and Washington soothed concerns about U.S. tariffs. However, the latest result was below the market consensus of 15. Confidence was upbeat among firms producing textiles (4 vs 0 in Q2), chemicals (15 vs 14), ceramics, stone & clay (30 vs 17), general-purpose machinery (27 vs 23), production machinery (17 vs 15), electrical machinery (16 vs 11), shipbuilding & heavy machinery (36 vs 27), processed metals (0 vs -3), and motor vehicles (10 vs 8). At the same time, sentiment remained stable for business-oriented machinery (at 22) but fell for lumber & wood (-8 vs 0), petroleum and coal (0 vs 9), and iron & steel (-14 vs -3). Meanwhile, large firms planned to increase capital expenditure by 12.5% in Q3, after a 11.5% growth in Q1 and pointing to the strongest rise in seven quarters.