By Kaori Kaneko
TOKYO (Reuters) – Japanese manufacturers were less confident about business conditions in May compared with April and they expect sentiment to weaken over the next three months as changing U.S. tariff action saps optimism, a Reuters Tankan poll showed.
The subdued mood illustrates the challenge policymakers face after the economy shrank in the January-March quarter, with recovery under threat from U.S. President Donald Trump’s trade policy involving the imposition and suspension of steep tariffs.
In the monthly poll, which tracks the Bank of Japan’s quarterly business survey, the manufacturers’ business sentiment index slipped to plus 8 in May from plus 9 in April.
Manufacturers also said sentiment is likely to weaken to plus 7 over the coming three months.
Still, the figures remain in positive territory, indicating optimists outnumber pessimists about business conditions.
The Reuters poll surveyed 504 major non-financial companies of which 224 responded on condition of anonymity. Issues raised included rising prices and Chinese economic stagnation.
The poll was conducted from May 7-16, after Japan held a second round of tariff talks with the United States. Japan wants the U.S. to fully remove tariffs on its goods, including a 25% duty on automobiles and auto parts.
“Uncertainty over the outlook, including the U.S. tariffs, persists,” a manager at an electronics machinery maker wrote in the survey.
“Business conditions are not good due to the delay and freezing of capital investment in Japan caused by the U.S. trade policies,” said a manager at a steelmaker.
Still, sentiment in the transport sector jumped to its highest level since December 2023, with one manager saying their business had experienced an increase in vehicle production volume.
In the near term, firms in the transport and metal products said sentiment is likely to worsen due to tariff uncertainty, accelerating inflation and China’s weakening economy.
For the service sector, the business sentiment index stood at plus 30 in May, unchanged from April. Companies expect sentiment to weaken to plus 28 in the three months ahead.
Rising labour and raw material costs weighed on confidence, said a manager at a transportation firm, whereas some managers found support from inbound tourism.
(Reporting by Kaori Kaneko; Editing by Christopher Cushing)
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