Japan’s business sentiment declined in March 2025, as shown by the Reuters Tankan survey. The manufacturers’ sentiment index fell to -1, down from +3 in February, marking the lowest level since December.
Non-manufacturers’ confidence also dropped, decreasing from +30 to +25. This decline is linked to concerns over U.S. tariffs and a slow economic outlook in China, with some firms reporting fewer orders from China.
Future Outlook And Projections
Despite this downturn, manufacturers predict a future index of +4, while non-manufacturers expect +28 for June. The survey included 225 large non-financial companies.
The Bank of Japan is anticipated to maintain its current policy in its upcoming statement.
The decline in business sentiment serves as a clear signal that economic uncertainty is weighing on key industries. A drop from +3 to -1 in the manufacturers’ index reflects growing unease, making it the weakest reading since December. The weakening confidence among non-manufacturing firms, falling from +30 to +25, confirms that concerns extend beyond industrial production.
Much of the pressure appears to stem from external forces. Worries over U.S. tariffs remain evident, and reduced demand from China has directly affected order volumes. Firms relying on exports seem to be facing harsher conditions, with some citing cautious behaviour from overseas buyers. Domestic factors have not offered much of a buffer, as firms continue to navigate subdued economic momentum.
Monetary Policy And Stability
However, sentiment may not remain at these levels for long. Manufacturers expect conditions to improve, with a projection of +4 for June. Non-manufacturers have a more optimistic outlook, putting forward a forecast of +28. Whether these expectations hold up will depend on how external risks develop in the coming weeks. Responses from 225 major non-financial companies suggest that while short-term challenges are clear, some still anticipate a better environment as the year progresses.
As for monetary policy, the central bank appears unlikely to adjust its approach in the immediate future. Stability remains the priority, and policymakers are not expected to signal any abrupt changes. Markets watching for shifts will likely focus more on external developments, particularly trade issues and the direction of global demand.
