Japanese firms cited easing uncertainty around U.S. trade policy and resilient demand in high-tech sectors as key factors supporting business sentiment, according to comments from a senior Bank of Japan official on the December Tankan survey.

The BOJ official said companies pointed to a smaller-than-feared impact from U.S. tariffs, improved cost pass-through, and robust demand linked to artificial intelligence and semiconductor investment as positives for the business outlook.

At the same time, firms flagged persistent headwinds. Concerns remain over the impact of U.S. tariffs, rising labour costs and acute labour shortages, while higher prices were seen weighing on household spending and broader consumption.

Some non-manufacturing firms also warned that elevated prices were starting to dampen demand from inbound tourists, adding another layer of caution to the outlook despite improving external conditions.

The comments reinforce a balanced BOJ narrative: improving external conditions and pricing power offset by domestic cost pressures, supporting a gradual and cautious policy normalisation path. The Bank is expected top hike its rate this week, the meeting in December 18 and 19.

Source: Investing Live