Japanese Manufacturers Confidence Wavers Amid Tariff Uncertainties and Weak Chinese Demand
Japanese manufacturers have grown less confident about business conditions in June, according to a Reuters Tankan poll. The monthly survey, which tracks the Bank of Japan's quarterly business sentiment index, recorded a manufacturers' index of plus 6 in June, down from plus 8 in May. The index is projected to decline further to plus 2 in the coming three months, though it remains in positive territory, signaling that optimists still outnumber pessimists.
The poll, conducted between June 4-13, surveyed 504 major non-financial companies, with 220 responding on condition of anonymity. Japan has been in intensive negotiations with the United States to fully remove tariffs on its goods, including a 25% duty on automobiles and auto parts, Japan's biggest industry.
A manager at a machinery maker wrote in the survey that "our clients continue to be cautious about fresh capital expenditure as the Chinese economy has been sluggish and the impact of U.S. tariff policies remains unclear." Those in the automobiles and auto parts sector also voiced tariff concerns, with one manager saying that automakers are reducing production due to the U.S. tariff policies.
A chemicals firm manager reported that a client automaker had shifted domestic production to the U.S. to mitigate tariff costs, resulting in a drop in sales to the automaker. A pulp and paper maker flagged issues stemming from China's rare earth export curbs, which client companies are scrambling to address and which could affect demand for its products.
For the service sector, the business sentiment index stood at plus 30 in June, unchanged from May. Companies expect sentiment to weaken to plus 24 in the coming three months. The information and telecommunications sector reported clients' active information technology investments, while inbound tourism helped boost business confidence among services firms. However, rising labor costs and shortages weighed on some businesses, the survey found.
The recent decline in the confidence levels of Japanese manufacturers can be largely attributed to uncertainty surrounding tariffs as well as weak demand from China, highlighting just how significantly external economic factors impact business sentiment within this globalized economy.
