Japan’s manufacturers rebounded in February to +13, but services sentiment eased to +25, highlighting an uneven recovery. Forward indicators point to modest softening into May.
Summary:
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Reuters Tankan: manufacturers index +13 in Feb (vs +7 Jan), highest since November.
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Non-manufacturers slip to +25 (vs +32 Jan), signalling softer services momentum.
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Machinery strongest; transport machinery weaker on auto sales and China rare-earth concerns.
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May outlook: manufacturers seen at +10, non-manufacturers +23.
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Survey underscores uneven recovery amid tariffs, inflation and fragile domestic demand.
Japan’s factory sector regained some composure in February, but the broader economy continues to show signs of uneven momentum, according to the latest Reuters Tankan survey.
The manufacturers’ sentiment index rose to +13 in February, up from +7 in January and marking the strongest reading since November. The rebound, the first in three months, was supported by firmer machinery orders and a still-weak yen, which continues to underpin exporters’ earnings when profits are repatriated.
Machinery makers led the improvement, with their sub-index jumping to +15 from zero. Respondents cited improved visibility on orders and profits, alongside currency stability. The data suggest pockets of resilience in capital goods and export-linked sectors, even as policymakers remain wary of the inflationary consequences of prolonged yen weakness.
However, the underbelly of the survey reveals a more nuanced picture. Sentiment in transport machinery, including automakers and suppliers, slipped to +33 from +40, with managers pointing to soft domestic auto sales and tighter Chinese rare-earth regulations as headwinds. External trade frictions and supply-chain sensitivities remain key watchpoints.
Outside manufacturing, confidence cooled. The non-manufacturers’ index fell to +25 from +32, reflecting weaker inbound demand and more cautious consumers. Service-sector firms highlighted slowing Chinese tourism and intensifying competition, while some retailers reported tax-free sales to Chinese visitors still well below year-ago levels.
Looking ahead, manufacturers expect sentiment to moderate to +10 in May, while non-manufacturers see a further dip to +23. The forward guidance implies that February’s improvement may not yet signal a sustained acceleration.
For policymakers, including Prime Minister Sanae Takaichi, the survey reinforces the challenge of balancing fiscal expansion ambitions with lingering domestic fragility and external risks.
