Japan Big Maker Sentiment Improves for 5th Straight Quarter

Tokyo, July 1 (Jiji Press)–Business sentiment among large manufacturers in Japan improved for the fifth straight quarter, the Bank of Japan’s “tankan” survey for June showed Wednesday. The headline diffusion index for large manufacturers’ current business conditions rose to plus 22 from plus 17 in the previous March survey. The improvement reflected steady demand for artificial intelligence- and semiconductor-related businesses. Looking ahead, however, companies expect conditions to worsen due to concerns about rising costs stemming from the situation in the Middle East. The current business condition DI for large nonmanufacturers went up to plus 37 from plus 36, improving for the first time in five quarters. The DI shows the percentage of companies seeing good business conditions minus that of firms feeling the opposite. The current business condition DI for large manufacturers reached its highest level since March 2018. In addition to robust AI- and semiconductor-related demand, the progress in transferring higher purchasing costs to product prices helped improve sentiment across many manufacturing industries, including nonferrous metals and production machinery. Demand was also boosted by advance purchases made in anticipation of raw material procurement difficulties resulting from tensions in the Middle East. Meanwhile, the automobile sector saw its DI fall to plus 12 from plus 13, reflecting production cuts for markets including the Middle East. The current business condition DI for large nonmanufacturers climbed to its strongest reading since August 1991. Improved cost pass-through and stronger inbound tourism demand boosted sentiment, with the DI jumping to plus 46 from plus 34 for the accommodation and food services sector and to plus 33 from plus 26 for the retail sector. The business condition outlook DI toward September stood at plus 17 for large manufacturers and plus 28 for large nonmanufacturers, both lower than their current business condition DIs. In addition to rising raw material prices driven by Middle East tensions, there are concerns that a pullback in demand after earlier buying will put downward pressure on business activity. The DI for small manufacturers stood at plus 9, up from plus 7 in the March tankan to mark the first improvement in two quarters, while that for small nonmanufacturers fell to plus 15 from plus 16, deteriorating for two consecutive quarters. The average assumed exchange rate among all surveyed companies for fiscal 2026 stood at 152.57 yen to the dollar. Combined fiscal 2026 capital spending by large manufacturers and large nonmanufacturers is projected to increase 11.5 pct from the previous year. END [Copyright The Jiji Press, Ltd.]