Societe Generale analysts Reo Sakida and Jin Kenzaki highlight stronger‑than‑expected resilience in Japan’s non‑manufacturing sector in 1Q, based on the 4Q25 Tankan survey. They note that business managers have not yet revised up underlying inflation expectations despite the Oil price shock, and that financial conditions, while slightly tighter, remain comfortably loose from a Bank of Japan perspective.

Tankan shows robust non manufacturing sector

"The 4Q25 Tankan survey showed the Large Mfg Index at 17 (vs 16 Est, 16 in 4Q) and the Large Non‑Mfg Index at 36 (vs 33 Est, 36 in 4Q)."

"The improvement in manufacturing was broadly expected, but solid standing of non‑manufacturing (unchanged at 36) was not our expectation."

"We had anticipated that China Japan political tensions and the reduction in Chinese tourist inflows would weigh on non‑mfg sectors. "

"Business managers did not lift the underlying inflation outlook during the oil price shock, although it is likely they will do so in the next survey."

"Financial conditions tightened slightly but remain far from any level that would worry the BoJ."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)