The Reuters Tankan Index provides a monthly snapshot assessing Japanese business sentiment ahead of the Bank of Japan’s quarterly report.
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Japan Manufacturers Index +7 in July vs +6 in June
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Japan Non-Manufacturers Index +30 in July, unchanged from June
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Manufacturers seen at +8 in October, Non-Manufacturers at +27
Japanese manufacturers’ confidence edged up in July, with the Reuters Tankan index rising to +7 from +6 in June, helped by signs of recovery in the semiconductor sector. The service-sector index held steady at +30 for the third consecutive month.
Looking ahead, manufacturers expect sentiment to rise to +8 by October, though service firms see a modest dip to +27.
Electronics and chemicals led the gains, with chip demand slowly improving. However, the transport machinery sector weakened sharply, with its index falling to +9 from +20, reflecting concern over U.S. 25% auto tariffs.
Business leaders cited lingering uncertainty around U.S. trade policy and global geopolitical tensions, particularly in the Middle East, as dampening capital spending appetite.
Service-sector sentiment was mixed: wholesalers improved, but retail, IT, and property firms reported softer conditions. Some supermarkets benefited from successful price hikes, while department stores saw weaker tourism-driven sales compared to last year.
The results come amid mounting global trade headwinds and weak domestic data, with Japan’s economy contracting in Q1 and May exports falling for the first time in eight months.
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The July Reuters Tankan is the first for Q3. Looking back at Q2:
- April 2025: Japanese manufacturers’ sentiment rebounded to +9 in April from -1 in March, marking the highest level since August 2024. This improvement was attributed to a temporary boost in orders. However, the outlook remained cautious due to concerns over U.S. tariffs and weak demand from China. The service-sector index rose to +30 from +25 in March, driven by optimism in real estate and information services, though shipping firms expressed concerns over rising labor costs and declining volumes amid escalating Sino-U.S. trade tensions.
- May 2025: In May, the manufacturers’ index edged down to +8 from April’s +9, indicating a slight dip in business confidence. Companies cited uncertainty surrounding shifting U.S. tariff policies and concerns over China’s economy as key risks. The service-sector index remained steady at +30, with the transport sector experiencing a temporary lift due to increased vehicle production, though the overall outlook remained cautious.
- June 2025: June saw a further decline in manufacturers’ sentiment to +6 from May’s +8, marking the second consecutive monthly drop. The weakening sentiment reflects growing caution among firms amid ongoing U.S. tariff uncertainties and subdued Chinese demand. The service-sector index held steady at +30, supported by active IT investments and inbound tourism, though rising labor costs and shortages weighed on some businesses.
This article was written by Eamonn Sheridan at www.forexlive.com.