Contrary to popular belief, confidence among Japanese large manufacturers rose unexpectedly in June as compared to March, according to the Bank of Japan’s quarterly Tankan Survey. The headline index for big manufacturers’ business confidence climbed to +13 in June, up from +12 in March, surpassing market forecasts of +10. This improvement reflects firms’ ability to pass on rising costs through price hikes and maintain bullish long-term spending plans, with capital expenditure expected to rise 11.5% in the fiscal year ending March 2026, exceeding the prior 3.1% projection and market estimates of 10.0%.
However, confidence among non-large manufacturers showed a slight dip to +34 from +35, aligning with forecasts, as rising living costs and labor expenses squeeze consumption and profit margins. Both sectors anticipate worsening conditions in the next three months, driven by soft global demand and uncertainty over U.S. tariffs, particularly a 25% tariff on Japanese cars and a 24% tariff on other imports, paused until July 9. Manufacturers slashed profit estimates, expecting an 8.4% drop in recurring profits this fiscal year after a 5.8% gain in 2024, with exporters projecting only a 0.6% sales increase compared to 4.4% last year.
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The United States of America is supposed to bring its updated tariff plans on July 9th, which is only the beginning, as the plans will keep changing. So far, Japan hasn’t secured any exclusive trade deal with big economies. Only the UK and China have been able to strike a deal with the US, with an India deal still on the table. For now, the Japanese manufacturers seem to have no effect, but this can change drastically with time.
