Japanese business sentiment showed signs of weakening at the start of 2024, as manufacturers’ confidence fell to a six-month low. The latest Reuters Tankan poll revealed that the manufacturers’ sentiment index dropped to +7 in January, down from +10 in December. This marks the second consecutive decline, although the index remains in positive territory, indicating that optimism still outweighs pessimism among manufacturers.
The survey, which aligns with the Bank of Japan’s quarterly tankan, highlighted significant challenges particularly in materials-heavy sectors. The most notable declines occurred in industries such as oil and ceramics, where sentiment plummeted sharply to zero. The steel sector, meanwhile, saw its confidence fall further into negative territory, while the chemicals industry also reported a decrease in sentiment. Companies attributed these declines to weakening demand from major economies, with one steelmaker specifically noting a drop in orders from China for automotive-related products.
In addition to concerns regarding international orders, manufacturers pointed to softer consumer spending in both the United States and China. Some businesses also mentioned the impact of tariffs on exports, adding to the uncertainty faced by the manufacturing sector.
Mixed Sentiment Across Industries
Despite the overall decline in manufacturers’ confidence, some sectors demonstrated resilience. The automotive and electronic machinery industries experienced only modest declines in sentiment, suggesting that parts of Japan’s industrial base are better positioned than materials producers to weather the current global economic climate.
On the non-manufacturing side, sentiment also dipped slightly, with the index falling to +32 from +33. This downturn was primarily driven by wholesalers and retailers, although other sectors, such as information services, transport, and real estate, reported improvements. Notably, some service-sector firms highlighted a reduction in Chinese tourism, which is linked to ongoing diplomatic tensions. One department store manager noted a significant drop in sales from foreign tourists, while others maintained that the broader inbound demand remained strong.
Looking ahead, businesses anticipate differing trends in sentiment. Manufacturers expect their outlook to improve to +10 by April, reflecting hopes for a cyclical rebound. In contrast, non-manufacturers foresee a decline in sentiment to +26, indicating growing caution within the services economy.
For the Bank of Japan, these results present a complex picture. While the manufacturing sector still demonstrates a net positive sentiment, it is clearly losing momentum. Conversely, domestic-focused sectors remain relatively stable but are increasingly susceptible to shocks from trade and tourism fluctuations.
As the yen continues to show weakness, market analysts are also wary of potential intervention risks that could arise in response to currency fluctuations. The situation remains fluid, and stakeholders across industries are closely monitoring developments as they navigate these challenging economic conditions.