Japan Factory Sentiment Improves but Outlook Darkens on Tariff Concerns

Business confidence among Japanese manufacturers improved for a second consecutive month in August, according to the latest Reuters Tankan survey that tracks the Bank of Japan’s closely watched quarterly tankan. The manufacturers’ sentiment index rose to plus 9 from plus 7 in July, buoyed by a trade agreement reached last month with the United States that lowers tariffs on cars and other goods to 15% in exchange for a promised $550 billion Japanese investment package. Non-manufacturing sentiment fell for the first time in five months, slipping to plus 24 from plus 30, with retailers and construction firms citing weaker foot traffic and high temperatures. Looking ahead, respondents expect the manufacturers’ index to retreat to plus 4 by November, while the non-manufacturing index is forecast to edge up to plus 25, underscoring lingering uncertainty over U.S. tariff policy and cooling demand in China. The poll, conducted 30 July-8 August, received responses from 241 of 497 large non-financial companies. Transport-machinery makers, including auto producers, posted the biggest gain in sentiment, jumping to plus 25 from plus 9, yet many managers warned that potential changes in U.S. tariffs could force a rethink of production plans. The food industry registered the steepest decline, falling to minus 25 amid rising ingredient costs.