By Megumi Fujikawa

TOKYO--Large Japanese manufacturers became less upbeat about their business prospects in the first quarter of the year, a Bank of Japan survey showed Tuesday, reflecting concerns about President Trump's threat of higher tariffs on U.S. imports.

The main index in the closely watched tankan survey, which gauges sentiment among big manufacturers, was +12 in the March survey, deteriorating for the first time in four quarters and reaching the lowest level since March 2024. That compared with +14 in the previous survey in December, and matched the consensus among economists surveyed by data provider Quick.

The index represents the percentage of companies that said business conditions were favorable minus those that said conditions were unfavorable.

The result comes as companies await "Liberation Day" on April 2, when Trump is due to issue a new slate of tariffs that may affect trading partners like Japan. A major exporter of goods to the U.S., Japan's economy is exposed to trade restrictions like the 25% auto tariff that Trump announced last week.

BOJ policymakers monitor the tankan survey to take the temperature of corporate activity, including earnings projections, spending plans and perceptions of pricing.

BOJ Gov. Kazuo Ueda has said the bank will keep raising interest rates as long as the economy and prices move in line with the bank's projections. But the central bank maintained its policy rate at 0.5% at its March meeting as it became more cautious about risks posed by U.S. economic policies that could cause trade frictions and derail Japan's economic recovery.

Despite the cloudy outlook, companies in Japan plan to increase capital spending.

Major Japanese businesses plan to increase their capital spending by 3.1% in the new fiscal year that began on Tuesday, compared with a 8.7% increase planned for the just-ended fiscal year.

Corporations in the country tend to revise their spending plans upwards as the year progresses when they have firmer projections on earnings.

The tankan also showed that Japanese companies expect inflation to remain above the central bank's target of 2%. Companies of all sizes expect overall prices to rise by 2.5% a year from now, compared with the 2.4% forecast shown in the December survey.

Write to Megumi Fujikawa at megumi.fujikawa@wsj.com

(END) Dow Jones Newswires

March 31, 2025 20:15 ET (00:15 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.