Japanese manufacturers confident in chip demand, but non-manufacturing sentiment is sluggish

Japanese manufacturers confident in chip demand, but non-manufacturing sentiment is sluggish.

According to the latest Reuters Tankan survey, sentiment among Japanese manufacturers remained relatively optimistic in July, driven by strong demand for semiconductors, while confidence among non-manufacturing companies declined as conflicts in the Middle East, a weakening yen and rising interest rates pushed up costs.

Japanese manufacturers confident in chip demand The monthly survey is an important leading indicator of the Bank of Japan's quarterly Tankan Business Survey. The survey was conducted from July 1 to July 10 and received responses from 218 of the 511 companies surveyed.

The index is calculated by subtracting the proportion of pessimistic responses from the proportion of optimistic responses, with positive numbers representing net optimism. Data show that Japan's manufacturer sentiment index in July was unchanged from June, at +13.

Japanese manufacturers reported a recovery in the semiconductor market, including growth in memory-related demand and rapidly expanding orders for chips and artificial intelligence server products. The number of orders for electronic components received by Japanese manufacturers has also generally increased.

"The number and value of orders have reached unprecedented levels, and we are worried about production capacity," said the person in charge of a precision machinery manufacturer.

Non-manufacturing industry still faces the haze in the Middle East However, at the same time, Japan's non-manufacturing sentiment index fell from +32 points to +25 points, affected by Japan's domestic cost pressure and the uncertainty of the US-Israeli war with Iran.

"Although signs of easing in the Middle East are beginning to show, the situation has not yet recovered," said a manager in Japan's services industry.

The Tankan survey released by the Bank of Japan earlier this month showed that Japanese business confidence has reached its highest level in eight years, and business inflation expectations have also risen to a record high.

But at the same time, the Bank of Japan last week sent a cautious signal about domestic inflation, saying the war with Iran could prompt more companies to raise prices later this year.

Although the United States and Iran reached a memorandum of understanding and launched peace talks in June, the two sides have recently begun launching missile attacks on each other, and international energy prices are facing the risk of rising again.

Due to soaring oil prices, Japan's wholesale prices in May have soared to a three-year high of 6.3% year-on-year, indicating that Japanese companies have begun to pass on the costs of energy shocks to consumers. Looking ahead, Japanese manufacturers expect sentiment to remain stable, with the index expected to rise slightly to +14 in October.

The non-manufacturing index is also expected to remain at +25 as Japanese business leaders assess the impact of geopolitical risks and supply chain challenges. (

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