Japan Business Sentiment Hits Four-Year High, Keeping BOJ Rate Hike Expectations Alive

Japan business sentiment climbed to a four-year high in the three months to December, according to the Bank of Japan’s tankan survey, keeping expectations alive that the central bank could raise interest rates at its Dec.18–19 meeting.

The headline index for large manufacturers edged up to +15 from +14 in September, while big non-manufacturers held steady at +34.

Firms said Japan business sentiment could weaken in the March quarter as concerns persist over US tariffs and sluggish consumption.

Large companies plan to increase capital spending by 12.6% in the year to March 2026.

The tankan showed the labour market at its tightest since 1991 and firms’ inflation expectations at 2.4% one, three and five years ahead.

A separate BOJ poll found many firms expect 2026 pay hikes to match those in 2025.