Japanese Businesses Stay Optimistic Despite Upcoming Tariff Challenges

Japanese Businesses Stay Optimistic Despite Upcoming Tariff Challenges

03 Apr, 2025

Large Japanese businesses remained optimistic in the first quarter despite the looming threat of heavy U.S. tariffs on their products. The Bank of Japan’s latest tankan survey reported a headline index of 12 for big manufacturers, indicating business confidence. While this was a drop from 14 in December and marked the first decline since early 2024, analysts viewed the results with cautious optimism.

According to economist Shunpei Fujita from Mitsubishi UFJ Research & Consulting, the decline was expected due to U.S. tariff hikes and a slowing global economy, particularly in the materials sector. However, some industries, like automakers, showed resilience. The sentiment index for automakers rose from 8 to 13, reflecting a stronger outlook than anticipated. The survey, conducted from February 26 to March 31, included nearly 9,000 companies and maintains a high response rate of over 99%, ensuring its accuracy.

Despite the uncertainty, businesses remained positive as the U.S. administration, under President Donald Trump, announced new 25% tariffs on steel, aluminum, autos, and auto parts. Additional reciprocal tariffs, part of what Trump calls "Liberation Day," are also expected. Analysts predict that large manufacturers’ sentiment could worsen as the full impact of these tariffs becomes clear.

The BOJ is unlikely to significantly alter its policy stance based on the first-quarter survey results. It maintained interest rates in its last meeting, with many analysts predicting a rate hike by July. Meanwhile, large nonmanufacturing companies reported improved business conditions, with the index rising to 35, the highest since August 1991. Factors such as booming tourism and the ability to pass on rising costs contributed to this growth. Despite challenges like labor shortages and higher interest rates, the continued improvement in sentiment surprised analysts.

 


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