Japan Reuters Tankan Falls to 3-Month Low

The Reuters Tankan index for Japanese manufacturers edged up to 8.0 in May 2026 from 7.0 in April, as commodity-related industries recovered from the sharp deterioration caused by the Iran war. Improvements were seen in chemicals, steel, and nonferrous metals, supported by front-loaded demand and a rebound in materials sectors. However, the recovery in overall factory sentiment remained limited, as confidence among transport machinery firms, including automakers and suppliers, weakened further amid supply constraints linked to disruptions in the Strait of Hormuz. Food processors and textile-related industries also remained deeply pessimistic due to rising raw material costs and the weak yen. Meanwhile, non-manufacturers’ sentiment fell to 29.0 from 31.0. Both manufacturing and services firms expect conditions to weaken further by August amid ongoing concerns over the Iran war, supply disruptions, and elevated energy costs.

The Reuters Tankan index for Japanese manufacturers fell to 7.0 in April 2026, down sharply from 18.0 in the previous month, marking the biggest monthly drop since January 2023 and the first decline in three months. The latest reading pointed to a clear deterioration in business sentiment, as surging oil prices and supply-chain disruptions stemming from the Middle East conflict drove up input costs and weighed on operations. Lingering uncertainty over global trade conditions, alongside currency volatility, including a weaker yen, further clouded the outlook. As a result, firms have turned more cautious, scaling back expectations for production and capital spending in the months ahead.

The Reuters Tankan index for Japanese manufacturers jumped to +18 in March 2026 from +13 in February, marking its strongest level since December 2021, as a near-term rebound in industrial momentum was supported by robust semiconductor-related demand and a pickup across key manufacturing sectors. The improvement was broad-based, led by chemicals and petroleum-linked industries, where sentiment surged alongside stronger demand tied to the semiconductor cycle. Transport machinery, a core pillar of Japan’s export economy, also showed resilience amid solid vehicle production and healthy order books. Meanwhile, the steel and non-ferrous metals segment remained deeply negative due to weak demand linked to the auto sector. Looking ahead, manufacturers expect sentiment to ease to +14 by June, reflecting rising uncertainty from the Middle East conflict, elevated input costs, and external demand risks.