Japan Manufacturers' Mood Steady in July

The Reuters Tankan index for Japanese manufacturers stood at +13 in July 2026, unchanged from the previous month after rising over the previous two months, supported by solid semiconductor demand. Manufacturers reported a recovery in the semiconductor market, including memory-related demand, alongside rapidly expanding orders for products used in chip applications and AI servers. "Order volumes and values are at levels we've never seen before, and we're concerned about production capacity," a manager at a precision machinery maker said. Meanwhile, non-manufacturers' sentiment fell to +25 from +32 as the Middle East conflict, a weak yen, and rising interest rates pushed up costs. Looking ahead, manufacturers expect sentiment to edge up to +14 in October, while non-manufacturers see their index holding at +25 as businesses continue to assess the fallout from geopolitical risks and supply chain challenges.

The Reuters Tankan index for Japanese manufacturers climbed to +13 in June 2026 from +8 in May, marking a second straight month of improvement as strong semiconductor demand boosted confidence among chemicals, electronics, and machinery producers. The chemicals sector index surged to +20 from +6, while firms cited booming orders tied to the chip market despite ongoing geopolitical tensions. Meanwhile, non-manufacturers’ sentiment rose to +32 from +29, supported by stronger confidence in the real estate and construction sectors and a steady pipeline of new projects. Looking ahead, manufacturers expect sentiment to remain at +13 in September, while non-manufacturers see their index easing to +19 amid concerns over geopolitical risks and supply chain challenges. The transport machinery sector, including automakers, turned notably cautious, with its outlook falling to -13 from +13, reflecting persistent material sourcing difficulties and supply chain disruptions.

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.