Japanese corporate confidence hits a four-year high, but the Iran conflict could be the biggest wildcard

Gate News message, despite ongoing heightened tensions in the Middle East, Japanese large companies’ confidence remained strong in the first quarter of 2026. According to the Bank of Japan’s latest Tankan survey, the business confidence index for large manufacturers rose to 17, up from 15 in the previous quarter, exceeding market expectations and reaching the highest level since the end of 2021. The business confidence index for non-manufacturers, meanwhile, held at 36, at a high level seen for decades.

Analysts say that Japanese firms’ profitability is solid, offsetting to some extent the pressure brought by rising energy costs. UBP economist Carlos Casanova said that profit performance supports business confidence, while early-year export growth also provides momentum for the economy. HSBC economist Frederic Neumann also noted that Japan’s strong export performance in January and February is an important factor behind the rebound in business sentiment.

However, this data also has a clear lag. Because the survey period runs through March, it has not yet fully captured the actual impact of the escalation of the conflict involving Iran. As transport risks in the Strait of Hormuz rise, volatility in energy prices has increased, and the cost pressures facing companies in the future are also rising. Frederic Neumann believes that uncertainty around the economic outlook in the coming months has increased significantly, and supply-chain stability is also facing challenges.

Oxford Economics economist Noriaki Yamaguchi similarly pointed out that the current survey results do not adequately reflect changes in geopolitical risk. He expects that rising energy prices will worsen Japan’s terms of trade, thereby weakening business confidence. The data show that Japan relies on imported energy for more than 87% of its needs, making it highly sensitive to external shocks.

On the policy front, Japan has begun releasing strategic oil reserves and providing fuel subsidies to cushion the impact of rising energy prices. If oil prices continue to rise, it may further push up inflation. The market is re-evaluating Japan’s economic resilience, and the gap between short-term confidence and mid-term risks may become a key variable for subsequent developments. (CNBC)