Japanese Manufacturers’ Confidence Slips to Six-Month Low as Global Demand Weakens

Japanese manufacturers’ confidence fell to its lowest level in six months in January, reflecting growing concerns over weakening global demand, particularly in major economies such as China and the United States. According to the latest Reuters Tankan poll, sentiment among manufacturers declined for the second consecutive month, although it remained in positive territory overall.

The monthly survey, which closely tracks the Bank of Japan’s widely watched tankan index, showed the manufacturers’ confidence index dropping to plus 7 in January from plus 10 in December. The decline was driven largely by materials-related industries, which recorded some of the sharpest drops in sentiment. The oil and ceramics sector saw its index plunge by 25 points to zero, while confidence in the steel sector fell 11 points to minus 44. The chemicals industry also weakened, slipping five points to plus 6.

Executives cited sluggish overseas demand as a major factor behind the downturn. A steelmaker pointed to a sharp slowdown in Chinese orders for automobile-related products, while a chemical company noted softer consumer spending in both the U.S. and China. Trade-related pressures also weighed on sentiment, with a machinery manufacturer highlighting shrinking exports to the United States due to tariffs.

Despite the challenges facing manufacturers, confidence among non-manufacturers also edged lower, albeit only slightly. The non-manufacturing index dipped to plus 32 from plus 33, led by declines among wholesalers and retailers. Wholesalers saw a 10-point drop, while retailers fell seven points. However, sectors such as information services, transportation, and real estate recorded modest improvements, helping cushion the overall decline.

Service sector companies also reported mixed conditions. Several firms noted the impact of fewer Chinese tourists visiting Japan amid ongoing diplomatic tensions between the two countries. A department store manager said sales to foreign tourists had dropped by as much as 40%. Nevertheless, some businesses downplayed the severity of the situation, with an airline executive noting that inbound demand remains broadly strong despite the diplomatic strain.

Looking ahead, manufacturers expect confidence to rebound to plus 10 by April, signaling cautious optimism. In contrast, non-manufacturers anticipate further deterioration, with sentiment forecast to fall to plus 26. The Reuters Tankan poll was conducted between December 24 and January 7, with responses from nearly 240 companies, all provided anonymously.