Large manufacturers DI rises to 24 in September
Japanese business confidence among large manufacturers improved in September, with the headline diffusion index rising 2 points to plus 24. The Bank of Japan's quarterly Tankan survey showed enterprises plan a 7.6 percent increase in fixed investment for fiscal 2026.
Factory sentiment strengthens across heavy sectors
The headline business conditions diffusion index for large manufacturers rose by 2 points from June to plus 24, exceeding the previous survey forecast of 17. The improvement was led by nonferrous metals at 45, production machinery at 43, and general-purpose machinery at 40. Large nonmanufacturing sentiment eased by 2 points to 35, with construction at 56 and real estate at 52 remaining the strongest sectors.
Across all surveyed enterprises and industries, the sentiment index reached 21, up 3 points from June.
Medium-sized manufacturers registered a 6-point increase to 23, while small manufacturers gained 5 points to 14. Exporting large manufacturers revised their FY2026 exchange rate assumption to 153.79 yen per US dollar.
Rising borrowing costs and acute labor strains
Planned fixed investment across all industries points to sustained capital outlays, with large firms forecasting an 11.3 percent spending increase in fiscal 2026.
However, severe labor shortages persist, as the all-industry employment DI stood at minus 38. Concurrently, the loan interest rate DI rose 7 points to 68, reflecting higher borrowing costs across corporate Japan.
Long-term corporate inflation expectations remained anchored at 2.5 percent over five years.
Solid momentum meets tightening reality
Robust corporate profits and steady investment plans provide clear support for further policy normalization.
However, pessimistic outlooks across smaller enterprises reveal growing sensitivity to rising interest rates.
Tight labor markets and stable inflation expectations confirm that underlying economic momentum remains intact.
Source: Tankan (Sept.): Summary and Outline
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