Japan Economics: June Tankan - Resilient business confidence and price outlook support continued rate hikes

Research evidence excerpt

Japan Economics: June Tankan - Resilient business confidence and price outlook support continued rate hikes

Japan Economics

01 July 2026 Citi Research

June Tankan: Resilient business confidence and

price outlook support continued rate hikes

In the June Tankan survey the business confidence DI at large manufacturers rose

to 22 from 17 in March, overshooting the market projection. The headline DI at large

nonmanufacturers also inched up from 36 to 37 (Figure 1). Due to the reference

date for submitting responses, the previous March survey did not reflect much of

the adverse impact of the escalating Middle East conflict, while businesses mostly

submitted their responses before the US-Iran MoU in June. Given this, the overall

result of the latest Tankan looks resilient. While the forecast DIs (for September)

did weaken, we would take them as a reference.

Elsewhere, despite headwinds from the Middle East situation, strong global

demand for AI/chips helped capex plans remain firm as usual (Figure 2). The DIs for

financial position and the DI for lending attitude of financial institutions also held

out against the backdrop of continued rate hikes. Meanwhile, inflation related

gauges including the input and output price DIs as well as inflation outlook

remained on an upward path (Figure 3 and 4). In particular, not only the short-term

price outlook (one year ahead) but also the long-term outlook (five years ahead)

continued to rise. In our view this means the current inflationary environment has

turned into structural and sustained inflation for businesses rather than temporary

cost-push inflation.

We think all of the above developments support additional rate hikes as the BoJ

seeks to normalize monetary policy. The ongoing yen depreciation may also justify

further rate hikes.