FX.co ★ Japan Business Mood Eases in Q1

Japan’s Business Survey Index for large manufacturers slipped to 3.8% in the first quarter of 2026 from 4.7% in the previous quarter, but stayed in positive territory for a third straight quarter. The reading undershot market expectations of 5.5%, as firms contended with the fallout from the Middle East conflict and a sharp rise in oil prices. These developments have intensified worries about a potential drag on economic growth and a resurgence of inflationary pressures in Japan, complicating the outlook for both fiscal and monetary policy. Looking ahead, manufacturing sentiment is projected to soften further to 0.7% in the second quarter before recovering to 6.3% in the third quarter. The index—derived from a survey of major manufacturers—remains a critical gauge for an economy in which industrial production plays a pivotal role.