Japan Manufacturers’ Sentiment Strengthens in July

The Reuters Tankan index for Japanese manufacturers increased to +7 in July 2025 from +6 in June, representing the first improvement in three months. The rise was mainly due to a recovery in the semiconductor industry, despite ongoing concerns about US trade tariffs. Looking forward, manufacturers expect further improvement, forecasting sentiment to reach +8 by October. Notably, the electronics machinery sector index rose to -4 in July from -16 in June, while the chemicals index climbed to +18 from +12, with many companies attributing the rebound in chip demand as a significant factor. On the other hand, the transport machinery sector, which includes Japan's crucial automobile industry, experienced a significant decline in its index, dropping to +9 from +20. Some executives linked this decrease to the impact of the 25% US auto tariffs, which have affected export volumes and raised operational expenses. Despite the overall positive sentiment, manufacturers are closely monitoring the evolving US trade policy as a potential risk factor.