The stronger Reuters Tankan reading adds to the case for continued Bank of Japan policy normalisation, with manufacturer sentiment now at its best level since December 2021 and both current and forward-looking indexes pointing higher. A steady, broad-based improvement rather than a single-sector spike gives the BOJ more room to look through near-term noise when it weighs its own quarterly Tankan and future rate decisions. The yen may see modest support on the read-through to a firmer BOJ policy path, though the poll’s own flagged risks, Middle East tensions, input costs and soft domestic consumption, are likely to keep any move measured. The Nikkei 225 could find modest support from the read-through to resilient corporate conditions, though gains may be capped by the same BOJ policy-normalisation expectations that are lifting the yen. Traders will treat this as a leading signal for the official BOJ Tankan rather than a standalone catalyst.
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Japanese manufacturers are their most upbeat in nearly five years as AI-driven chip demand ripples through the supply chain.
Summary
Reuters Tankan manufacturers’ index rose to +21 in September from +18 in August, the highest since December 2021Non-manufacturers’ index edged up to +29 from +28, staying within its 2025 to 2026 rangeThree-month outlook: manufacturers seen at +27, non-manufacturers steady at +27Poll conducted 26 August to 4 September, with 224 of 510 firms respondingElectronics sub-index surged to +39 from +24 on data centre and semiconductor demand; steel and nonferrous metal held negative at -13Real estate and construction rose to +37 and transport and utilities climbed to +33, while information and communications slipped to +21
Business confidence among large Japanese manufacturers climbed in September to its highest level since December 2021, driven by robust semiconductor and data centre related demand, according to a Reuters monthly poll released Wednesday. The Reuters Tankan sentiment index for manufacturers rose to +21 from +18 in August, extending a steady recovery from +7 in April. Non-manufacturer sentiment edged up to +29 from +28, remaining within the range that has held through 2025 and into this year.
The poll, a leading indicator ahead of the Bank of Japan’s own quarterly Tankan survey, was conducted from 26 August to 4 September and drew responses from 224 of 510 firms surveyed. The index is calculated by subtracting the share of pessimistic responses from optimistic ones, so a positive reading points to net optimism among respondents.
The improvement in manufacturing was led overwhelmingly by electronics, where the sub-index jumped to +39 from +24 the previous month. An electronics company manager cited in the poll said demand tied to data centres remains extremely strong, reflecting a wave of AI-related capital spending flowing through to Japanese suppliers of chips, testing equipment and related components. Precision machinery held steady at +29 and metal products edged up to +26 from +25. Textiles and paper pulp swung to +13 from zero, while steel and nonferrous metal stayed negative at -13.
On the non-manufacturing side, real estate and construction rose to +37 from +32 and transport and utilities climbed to +33 from +25. Information and communications slipped to +21 from +33, while retailers rebounded to +18 from +9. A property company manager said landlords have continued to push through rent increases, pointing to sustained pricing power in real estate despite concerns over higher borrowing costs.
Looking three months ahead, manufacturers expect sentiment to strengthen further to +27, while non-manufacturers see their index holding at +27. Respondents flagged Middle East tensions, raw material costs and softer domestic consumption as the main downside risks to that outlook. As a widely watched precursor to the BOJ’s official Tankan, the survey’s steady, broad-based gains give policymakers a firmer read on business conditions heading into their next quarterly assessment, reinforcing the sense that corporate sentiment, and particularly the AI-linked capital spending cycle, has continued to build through the second half of the year.
Sidebar: Reuters Tankan vs Bank of Japan Tankan
The Reuters Tankan and the Bank of Japan’s own Tankan share a name and a similar diffusion-index methodology, but they are distinct surveys.
Bank of Japan Tankan: The official, quarterly survey conducted directly by the BOJ, covering roughly 9,000 to 10,000 firms across manufacturing and non-manufacturing sectors. It is released four times a year (typically early April, July, October and January) and carries the greatest market weight because it feeds directly into the BOJ’s own policy deliberations.Reuters Tankan: A private, monthly poll run by Reuters, covering a smaller panel of large firms (around 500 in this survey, with 224 responding). It uses a comparable methodology and question set to the BOJ’s survey, which is why it is treated as a leading indicator or proxy for the official release.
How they relate: because the Reuters poll runs monthly and closes to a tighter, more recent window than the BOJ’s quarterly survey, it is watched as an early read on the direction the next official Tankan is likely to take, rather than a substitute for it. A rising or falling trend across two or three Reuters Tankan readings ahead of a BOJ Tankan release is often taken as a signal of where the official index may head, though the smaller sample size and private methodology mean the two can diverge, particularly around turning points or when sentiment is volatile across sectors. The BOJ Tankan remains the benchmark reading for policy purposes; the Reuters Tankan is best read as a directional guide in between official releases.
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BoJ meetings ahead if you need a reminder:
This article was written by Eamonn Sheridan at investinglive.com.