Japan Q3 Business Confidence Hit Highest Since 2018

The Bank of Japan’s sentiment index for large manufacturers rose to 24 in Q3 2026 from 22 in Q2, its highest reading since Q1 2018, but still fell short of market expectations of 25. The result marked the sixth consecutive quarterly improvement, amid strong global demand driven by AI investment, even as rising costs and energy pressures from Middle East tensions remained a drag. Confidence strengthened across firms producing textiles (13 vs 8 in Q2), chemicals (26 vs 20), petroleum & coal (36 vs 9), ceramics, stone (22 vs 11), non-ferrous metals (45 vs 36), processed metals (16 vs 11), production machinery (43 vs 36), electrical machinery (33 vs 29), and construction (56 vs 52). In contrast, sentiment eased in industries producing lumber & wood (-7 vs 7), pulp & paper (36 vs 40), food & beverages (3 vs 9), motor vehicles (11 vs 12), and transport & postal activities (21 vs 25). Meanwhile, large firms expect capital expenditure to rise 11.3%, after an 11.5% increase in Q2.

The Bank of Japan’s sentiment index for large manufacturers climbed to 22 in Q2 2026 from 17 in Q1, beating market forecasts of 16 and reaching its highest print since Q1 2018. The upturn suggested that the economy has, for now, remained resilient despite the energy shock triggered by the Middle East conflict. Confidence strengthened across firms producing lumber & wood (7 vs 0 in Q1), chemicals (20 vs 14), non-ferrous metals (36 vs 23), general-purpose machinery (38 vs 34), production machinery (36 vs 26), business-oriented machinery (23 vs 15), electrical machinery (29 vs 22), and shipbuilding (39 vs 35). Also, sentiment rebounded in the textiles industry (8 vs -5), while it was flat for food & drinks (at 9). In contrast, confidence fell in industries producing pulp (40 vs 44), ceramics (11 vs 25), and processed metals (11 vs 16). Meanwhile, large firms expect capital expenditure to increase by 11.5%, accelerating from 3.3% in Q1, which had marked the weakest rise since Q1 2023.

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.