Summary:

  • Reuters Tankan shows manufacturers’ mood slips to six-month low

  • Manufacturing index falls to +7 from +10 in December

  • Materials sectors (oil/ceramics, steel, chemicals) lead declines

  • Non-manufacturers dip slightly to +32 from +33

  • April outlook diverges: manufacturers improve, services worsen

Japanese business sentiment softened at the start of the year, with manufacturers’ confidence slipping to a six-month low in January as weaker demand from major economies weighed on materials-heavy sectors, according to the latest Reuters Tankan poll.

The monthly survey, which tracks the Bank of Japan’s closely watched quarterly tankan, showed the manufacturers’ sentiment index fell to +7 in January from +10 in December, marking a second consecutive decline while remaining in positive territory. The index is calculated as the share of optimistic responses minus pessimistic ones, meaning readings above zero still indicate net optimism.

The pullback was most pronounced in materials industries. The oil and ceramics sector recorded one of the steepest drops, falling sharply to zero, while steel sentiment deteriorated further into deeply negative territory and chemicals confidence also eased. Companies cited lacklustre demand conditions across key export markets, with one steelmaker pointing to weaker Chinese orders for automotive-linked goods. Others flagged softer consumer spending in the U.S. and China, while some manufacturers pointed to the drag from tariffs on exports.

By contrast, the auto and electronic machinery sectors saw only modest declines, suggesting parts of Japan’s industrial base are holding up better than materials producers exposed to the global cycle.

Sentiment among non-manufacturers edged slightly lower, with the index slipping to +32 from +33. The decline was led by wholesalers and retailers, though other areas such as information services, transport and real estate improved. Some service-sector firms also referenced a fall in Chinese tourism linked to a bilateral diplomatic row, with one department store manager reporting a sharp drop in foreign tourist sales. Others, however, said the broader inbound demand backdrop remained resilient.

Looking ahead, companies see a divergence in momentum. Manufacturers expect sentiment to improve to +10 by April, while non-manufacturers anticipate conditions deteriorating to +26, pointing to rising caution in the services economy even as factories look for a cyclical rebound.

For the Bank of Japan, the results underscore a mixed picture: manufacturing is still positive but losing steam, while domestic-facing sectors remain supported yet increasingly vulnerable to trade and tourism shocks.

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