Japan’s business sentiment among major manufacturers improved in March even as companies grappled with worries over economic growth and oil supply after the war in Iran, according to a Bank of Japan quarterly survey released Wednesday.
The central bank said the key so-called diffusion index for manufacturers rose to 17 in March from 16 in the latest tankan report. The BOJ said the index increase marked the fourth quarter in a row that sentiment has improved, reflecting the gap between firms that see good conditions and those that expect pessimism.
The report also pointed to mounting uncertainty tied to the Iran conflict, including concerns about economic growth and oil supplies. It said the figures are a gauge of companies’ expectations rather than a direct measure of current conditions.
In parallel, the BOJ said the index for large non-manufacturers—such as companies in the service sector—stood unchanged at 36 compared with the previous tankan.
While the survey suggested manufacturers’ outlook was firming, the BOJ report noted that investors and consumers faced continued uncertainty about how long the war might last and what may come next from the United States, including remarks from President Donald Trump referenced in the reporting environment around the time.
The Associated Press reporting also described how Japan’s benchmark Nikkei 225 has moved sharply in recent weeks amid the same global uncertainty. The focus for market participants, it said, is whether the conflict and related energy and currency pressures begin to feed through more clearly into prices in Japan.
Analysts cited in the report said the Bank of Japan may consider raising interest rates as inflation risks build. They tied those risks to soaring energy costs and a declining yen, which the reporting said directly affects living costs for households.
The report also outlined Japan’s recent history with monetary policy, saying the BOJ held its interest rate unchanged at 0.75% in March after moving away from a negative interest rate policy that had been in place for years to fight deflation. It said the next BOJ monetary policy board meeting is scheduled for April 27 and 28.
The survey period therefore leaves Japan’s central bank under scrutiny as market expectations weigh the meaning of an improving manufacturing outlook against the possibility that energy-related price pressures and currency moves could alter the inflation trajectory.