Summary
A monthly poll that follows the Bank of Japan's tankan survey showed a notable uptick in Japanese manufacturers' mood in March, with the headline sentiment index reaching its best reading in over four years. Strength in chemicals and petroleum, linked to renewed semiconductor demand, and steady orders in transport machinery contributed to the rise. However, firms flagged geopolitical risk in the Middle East, higher costs and subdued Chinese demand as constraints on future growth.
Poll findings
The manufacturers' sentiment index rose to plus 18 in March from plus 13 in February, marking the highest level since December 2021. In chemicals, confidence increased to 21 from 13, a shift respondents attributed mainly to stronger demand from chip-related industries. In petroleum and ceramics, the index jumped to 25 from 11, with some companies reporting a recovery in semiconductor markets and "significant order growth." Transport machinery sentiment edged up to 36 from 33, reflecting reports of "high order levels" and "solid vehicle production at client automakers."
Not all sectors shared the rebound. The textiles, paper, and pulp sector saw its sentiment index fall to 11 from 20, with one paper and pulp company manager noting that "the U.S.-Iran conflict has put customers in a wait-and-see mode, which has made it difficult to forecast future demand." Steel and non-ferrous metals remained deeply negative at minus 25, though an improvement from minus 44, with firms citing weaker orders tied to the auto industry.
Non-manufacturing and survey details
Sentiment among non-manufacturing firms held steady at 25 in March, even as some retail respondents raised concerns about weak Chinese demand. The poll was conducted between March 4-13, surveying 492 major non-financial companies, of which 216 responded. The indexes are calculated by subtracting the share of pessimistic respondents from that of optimistic respondents, with a positive reading indicating more optimism than pessimism.
Outlook and policy context
Looking ahead, manufacturers expect business sentiment to ease to 14 by June, while non-manufacturers project a decline to 21. The Bank of Japan is expected to hold interest rates steady on Thursday as the Iran war muddles the outlook, but to signal a continued commitment to a rate-hike bias.
Key sector observations
- Chemicals: Demand from semiconductor-related industries lifted confidence markedly.
- Petroleum and ceramics: Reports of significant order growth and semiconductor market recovery supported gains.
- Transport machinery: High order volumes and stable vehicle production among client automakers underpinned a stronger reading.
- Textiles, paper and pulp; steel and non-ferrous metals: These areas lagged, with geopolitical uncertainty and weak car-related orders cited as factors.
Quotes from respondents
"Sales to the semiconductor sector are strong for both equipment and devices. The outlook is also positive," said a manager at a chemical product company.
"The U.S.-Iran conflict has put customers in a wait-and-see mode, which has made it difficult to forecast future demand," said a manager at a paper and pulp company.