The Bank of Japan released the September survey of its Tankan Short-Term Economic Survey of Enterprises, confirming a pattern in which expanding AI-related demand and the pass-through of higher costs to selling prices are supporting corporate earnings. Although some areas of domestic demand have lost momentum, capital investment plans remain solid.
In the Bank of Japan’s September Tankan survey, expanding AI-related demand lifted business sentiment across a wide range of industries, including materials, while the continued pass-through of higher costs to selling prices was also cited as a factor supporting corporate earnings. The business conditions index for large manufacturers rose 2 points from the previous survey, improving for the sixth consecutive quarter.
Business sentiment among small and medium-sized manufacturers also improved, with the index rising 5 points. Although domestic demand lacked momentum in some areas, the survey noted significant effects from prolonged rain and natural disasters. Looking ahead, the outlook for ordinary profit in fiscal 2026 turned to a 2.2% year-on-year increase overall, while capital investment plans are also expected to remain solid.
In terms of price trends, higher costs resulting from turmoil in the Middle East are being passed on to selling prices, while the surge in raw-material prices is easing. This could support improvements in business conditions and profitability. However, the risk of a renewed rise in oil prices from autumn onward remains, and some observers say risks of higher prices have not been eliminated.
At the same time, industries closer to the front line of personal consumption, such as retail, are increasingly concerned that passing on higher prices will reduce demand, and concerns that higher prices will cool domestic demand remain strong. Careful collection and analysis of corporate trends will be needed to assess the timing of the BOJ’s next rate hike.