1. Report Overview
The Bank of Japan's National Short-term Economic Survey (TANKAN) for June 2025 was conducted from May 28 to June 30, targeting 8,911 companies nationwide with an exceptionally high response rate of 99.2%. This survey serves as a crucial economic indicator for comprehensively understanding Japanese companies' assessments of current economic conditions and future prospects. The results are analyzed in detail by company size (large, medium, and small enterprises) and by industry (manufacturing and non-manufacturing), revealing corporate perspectives on various aspects including business conditions, capital investment plans, employment situations, and price trends.
2. Key Points
The most notable finding from the June 2025 survey is that the business conditions DI for all sizes and industries remained flat at 15 points compared to the previous survey. The DI for large manufacturing companies stood at 12 points, while large non-manufacturing companies showed a significantly better 34 points, indicating stronger business conditions in the non-manufacturing sector. Capital investment plans showed robust investment appetite with a 6.7% year-on-year increase across all industries for fiscal 2025. However, the employment conditions DI remained at -35 points across all sizes, indicating persistent severe labor shortages that continue to constrain corporate activities. Additionally, ordinary profits are expected to decline by 5.7% year-on-year across all industries, suggesting cautious profit outlooks.
3. Manufacturing Sector Trends
The manufacturing sector's business conditions DI for large enterprises maintained 12 points, matching the forecast from the previous survey. Medium and small enterprises also showed stable business sentiment. Capital investment plans were particularly aggressive, with a planned 12.4% year-on-year increase for fiscal 2025, demonstrating strong willingness to expand production capacity and improve efficiency. Software and R&D investments showed similarly high growth rates, indicating active investments in technological innovation and competitiveness enhancement. However, uncertainties such as rising raw material prices and exchange rate volatility risks persist, leading to cautious outlooks for the future.
4. Non-Manufacturing Sector Trends
The non-manufacturing sector's business conditions DI for large enterprises maintained a favorable level of 34 points, significantly exceeding the manufacturing sector. This reflects the recovery in domestic demand and strong performance in tourism and service industries. Capital investment plans showed a modest 3.6% year-on-year increase compared to manufacturing, but still demonstrate steady investment appetite. Particularly, investments in digitalization and customer service improvements are being planned. However, labor shortages are more severe in the non-manufacturing sector, with securing human resources becoming a major management challenge in service and construction industries. Progress in raising selling prices indicates gradual advancement in passing on increased costs.
5. Capital Investment Plans
Capital investment plans for fiscal 2025 showed a 6.7% year-on-year increase across all industries, confirming companies' positive investment stance. Manufacturing planned a double-digit growth rate of 12.4%, focusing on updating and expanding production facilities, labor-saving and automation investments, and environmental compliance investments. Non-manufacturing showed a more cautious 3.6% increase, with steady investments centered on IT and digital transformation. Software and R&D investments across all industries showed an 8.7% increase, exceeding regular capital investments and demonstrating companies' proactive approach to technological innovation. Land-inclusive capital investments showed similar trends.
6. Employment and Wage Conditions
The employment conditions DI remained at -35 points across all sizes and industries, indicating persistent severe labor shortages. The shortage is particularly acute among small and medium enterprises, becoming a major constraint on business activities. This situation stems from the simultaneous progression of declining working-age population due to demographic changes and increased labor demand from economic recovery. Companies are implementing various measures to secure human resources, including wage increases, improved benefits, and work-style reforms. The new graduate hiring DI also shows shortage conditions, intensifying competition for future talent acquisition. Under these circumstances, companies are attempting to respond through labor-saving investments and operational efficiency improvements, which is reflected in their capital investment plans.
7. Price Trends and Outlook
The selling price DI for large enterprises stands at 25 points, indicating continued upward trends and progress in corporate price pass-through. The input price DI is at a higher 39 points, confirming persistent upward pressure from raw material prices and labor costs. Corporate inflation expectations show anticipated selling price increases of 2.9% across all industries after one year, suggesting a continued moderate inflationary environment. Exchange rate assumptions for fiscal 2025 are 145.72 yen per dollar and 157.79 yen per euro, with business plans based on a weak yen premise. These price trends serve as important factors significantly affecting corporate profits and investment decisions.
8. Regional and Size-Based Characteristics
By company size, large enterprises generally show favorable business assessments, while small and medium enterprises take relatively cautious views. The impact of labor shortages is particularly severe for SMEs, constraining business activities. The financial position DI improved to 11 points across all sizes, and the lending attitude DI of financial institutions remained stable at 14 points, maintaining a stable financial environment. However, SMEs face somewhat tighter funding conditions compared to large enterprises, requiring more cautious judgment in executing capital investments. The production and operating equipment DI stands at 1 point across all sizes, indicating nearly appropriate levels.
9. Future Outlook Characteristics
Regarding future business conditions, the September 2025 survey forecast expects the all-industry DI to decline to 9 points, indicating companies' cautious outlook. This reflects concerns including overseas economic uncertainties, persistently high raw material prices, and continuing labor shortages. For overseas business activities on a consolidated basis, sales are expected to increase slightly by 0.7% year-on-year, while ordinary profits are projected to decline by 4.9%. This is attributed to intensifying competition in overseas markets and exchange rate volatility risks. However, capital investment plans remain positive, with companies expected to continue their efforts toward medium- to long-term growth.
10. Conclusion and Future Prospects
The June 2025 Bank of Japan TANKAN clearly demonstrates that the Japanese economy maintains a moderate recovery trend while facing various structural challenges. Corporate business assessments remain generally stable, but gaps between manufacturing and non-manufacturing sectors, as well as between large enterprises and SMEs, indicate polarization trends. The most significant challenge is severe labor shortages, which constrain corporate activities. Meanwhile, capital investment appetite remains robust, with particularly active efforts in labor-saving and efficiency investments as well as digital transformation investments. Going forward, it is hoped that these investments will lead to productivity improvements and help alleviate labor shortage issues. Additionally, whether corporate profit improvements can be achieved through advancing price pass-through will be another important focus area.