Japanese manufacturers’ confidence improved to an eight-year high in the July–September 2026 quarter, while sentiment among large service-sector companies weakened, according to the Bank of Japan’s Tankan survey released October 1.
The mixed results show that export- and technology-linked manufacturers are benefiting from demand for artificial-intelligence equipment and easing supply constraints, but higher costs and softer consumer spending continue to pressure other businesses. The survey is an important input for Bank of Japan policymakers, but it does not by itself determine the timing of another interest-rate increase.
Manufacturing confidence rose, services slipped
The headline sentiment index for large manufacturers increased to plus 24 in September from plus 22 in June. That was the strongest reading since March 2018, although it was slightly below the plus 25 median forecast cited by Reuters.
For large non-manufacturers, the index fell to plus 35 from plus 37. It was the first decline in five quarters and came in below the plus 36 market forecast. A positive reading means more companies described business conditions as favorable than unfavorable.
The Bank of Japan published the September Tankan summary on October 1. The quarterly survey covers companies across Japan and is designed to measure current conditions, expectations, prices, investment and financing.
Why the two sectors moved differently
Manufacturers reported support from global demand for AI-related goods and semiconductors, along with fewer supply-chain constraints. Those factors helped offset uncertainty connected to energy costs and international conflict.
Non-manufacturing companies faced a different mix of pressures. Higher operating costs and restrained spending on durable goods weighed on confidence, according to economists quoted by Reuters on October 1.
The survey therefore does not support a simple conclusion that the entire Japanese economy strengthened at the same pace. It shows improving conditions for large manufacturers alongside a modest deterioration among major service-sector companies.
Inflation expectations stayed elevated
Companies surveyed by the Bank of Japan said they expect inflation of 2.6% three years from now and 2.5% five years from now. Those expectations remain above the central bank’s 2% inflation target, but they were stable or slightly lower than three months earlier rather than accelerating.
That distinction matters for monetary policy. Persistent expectations above 2% can support the case for additional rate increases, while the lack of a renewed acceleration may reduce the urgency for another immediate move.
What the Tankan could mean for interest rates
The Bank of Japan raised its policy rate in September to 1.25%, the highest level in 31 years. The latest Tankan will feed into the bank’s updated growth and inflation forecasts later in October.
Reuters reported that the mixed survey may lower the likelihood of back-to-back rate increases, even though the strong manufacturing result leaves the broader tightening case intact. That is an interpretation of the data, not an announced Bank of Japan decision.
The Associated Press reported on October 1 that Japan’s economy continues to face elevated oil costs, a weak yen and long-term labor shortages despite the improvement in manufacturing sentiment.
What to watch next
The Bank of Japan is expected to release fuller Tankan data on October 2. Investors and businesses will also watch the central bank’s later October outlook for its assessment of growth, wages and inflation.
For now, the September survey points to a resilient but uneven economy: large manufacturers are more optimistic, large non-manufacturers are less so, and long-term inflation expectations remain above target without a fresh surge.
More international economic reporting is available in AskNovus Economy, Finance News and World News.
Featured image: Louie Martinez via Unsplash.
Sources
- Bank of Japan, September 2026 Tankan, released October 1, 2026
- Reuters, October 1, 2026
- Associated Press, October 1, 2026