FX.co ★ Japan Business Sentiment Hits 1-Year High

In the fourth quarter of 2025, Japan's Business Survey Index for large manufacturers increased to 4.7%, up from 3.8% in the previous quarter, marking the highest reading of the year. This result exceeded forecasts of 4.1%, highlighting the sustained resilience of the sector despite challenges such as trade tensions, growth uncertainties, and escalating fiscal risks. Companies are also preparing for possible interest rate hikes from the Bank of Japan, with market expectations leaning towards an increase in December, followed by two to three additional hikes in 2026. Forward-looking indicators suggest a tapering of optimism, with manufacturing sentiment expected to decline to 1.1% in the first quarter and 1.3% in the second quarter of 2026. This index, derived from a survey of major manufacturers, remains a vital indicator for Japan's economy, where industrial production is a key driver.