Japan Manufacturer Sentiment Climbs to Highest Level Since 2018

The Bank of Japan’s sentiment index for large manufacturers rose to 22 in the second quarter of 2026, up from 17 in the first quarter, beating market forecasts of 16 and reaching its highest level since Q1 2018.

The stronger reading suggests that Japan’s manufacturing sector has remained resilient, at least for now, despite pressure from higher energy costs linked to the recent Middle East conflict.

Confidence improved across several industrial segments, including lumber and wood products, chemicals, non-ferrous metals, general-purpose machinery, production machinery, business-oriented machinery, electrical machinery, and shipbuilding.

Sentiment also rebounded in the textiles industry, rising to 8 from -5, while confidence in food and beverages remained unchanged at 9.

However, not all sectors improved. Confidence declined among companies producing pulp, ceramics, and processed metals, indicating that the recovery in sentiment was uneven across the manufacturing base.

Large firms also signaled stronger investment plans. Capital expenditure is expected to increase by 11.5%, accelerating from 3.3% in the first quarter, which had marked the weakest increase since Q1 2023.

The quarterly Tankan survey is one of the Bank of Japan’s primary gauges of business sentiment and corporate investment plans. The latest results pointed to stronger confidence among large manufacturers alongside increased capital expenditure expectations.