Japan Inc. Feels Good – for Now. The Iran War May Change That

With input from CNBC, Bloomberg, Reuters, and the Wall Street Journal.

Corporate Japan is sounding surprisingly upbeat. The catch? That confidence may already be out of date.

Fresh data from the Bank of Japan’s closely watched Tankan survey shows sentiment among large manufacturers ticking higher in early 2026. The index rose to 17 from 15 last quarter, beating expectations and marking the strongest reading in more than four years. On paper, things look solid.

Outside factories, the mood is even stronger. Big non-manufacturers held steady at 36, a level not seen in decades. That kind of optimism doesn’t show up often.

Part of the story is momentum. Japan entered the year on a decent footing, with exports holding up and profits giving companies a cushion against rising costs. That helped firms shrug off early pressure from energy prices.

Markets liked what they saw. The Nikkei jumped sharply after the data dropped, riding a wave of cautious optimism that the worst of the geopolitical shock might ease.

But there’s a timing problem.

The survey wrapped up in March – just as tensions around Iran were escalating into something much bigger. That means a lot of responses don’t fully reflect what’s happening now.

And what’s happening now is messy.

Energy prices are climbing again. Supply chains are getting squeezed. The Strait of Hormuz remains a major bottleneck, and every extra day it stays constrained adds pressure to economies that rely heavily on imported fuel.

Japan sits near the top of that list. The country imports more than 80% of its energy, making it highly exposed to exactly this kind of disruption.

Economists are already flagging the gap between sentiment and reality. The Tankan captures how companies felt heading into the crisis, not how they’ll feel if high oil prices stick around. And that shift could come quickly.

Higher energy costs don’t just hit fuel bills – they eat into margins, worsen trade balances, and eventually feed into inflation. Even a modest jump in crude prices can nudge Japan’s inflation rate higher over time.

The government has started leaning on stockpiles and subsidies to soften the blow. That buys time, not a solution.

If the energy shock drags on, corporate confidence is likely to follow oil prices in the wrong direction. What looks like resilience today could turn into caution tomorrow.

For now, Japan Inc. is holding its nerve. But the ground beneath it is shifting.