Business sentiment among major Japanese manufacturers improved in March, according to the Bank of Japan's quarterly Tankan survey released on Wednesday. The diffusion index rose from 16 to 17, marking the fourth consecutive quarterly increase.
The survey, which measures the number of companies reporting good conditions minus those reporting poor ones, showed that large non-manufacturers, including the service sector, held steady at 36. The improvement comes despite growing worries about Japan's economic growth and oil supplies due to the US-Israeli conflict with Iran.
Inflation in Japan has remained relatively moderate, but concerns are mounting over rising petrol prices and other costs. Investors and consumers face uncertainty over the war's duration and potential comments from US President Donald Trump. The benchmark Nikkei 225 has experienced wild fluctuations in recent weeks.
Analysts suggest the Bank of Japan may begin raising interest rates to address inflation, driven by soaring energy costs and a weakening yen. Both factors significantly affect living costs for average Japanese consumers. Historically, a weak yen benefited Japan's export-heavy economy, but the country now imports much of its energy, food, and manufacturing components, making the weak yen a burden.
Japan's central bank, which kept its key interest rate unchanged at 0.75 per cent in March, had maintained a negative rate policy for years to combat deflation before normalising in 2024. The next monetary policy meeting is scheduled for April 27 and 28.
