Japan manufacturers’ mood hits near 5-year high, service-sector sentiment slumps: Reuters poll

TOKYO, October 7 - Japanese manufacturers reported a surge in business confidence in October, reaching its near five-year high, while sentiment among non-manufacturers declined significantly, according to a Reuters monthly poll. The Tankan sentiment index for manufacturers climbed to plus-22 from plus-21 in September, a level not observed since December 2021.

The precision machinery sector, encompassing some semiconductor-related equipment makers, experienced the most notable boost, with confidence increasing by nine points to plus-38.

The semiconductor industry continues to thrive, with order volumes at 1.5 times their normal levels for the past four months, as reported by a manager at a precision machinery company. Machinery firms also cited robust orders and shipments tied to the semiconductor market. Sentiment in the metal products sector rose by nine points to plus-35, while the steel and nonferrous metals sector surged to plus-25 from minus-13.

However, sentiment among non-manufacturers plummeted to plus-23 from plus-29, its lowest level since November 2024. Food producers faced the steepest decline, dropping 15 points to minus-40 as higher raw material costs and reduced consumer spending squeezed profits. Similarly, sectors such as information and communications, retail, and real estate and construction recorded significant drops in sentiment, citing factors like higher interest rates, elevated construction costs, and weaker household spending.

Despite these challenges, property investment has become increasingly difficult due to rising interest rates and construction costs, as noted by a real-estate company manager. Wholesalers, on the other hand, improved to plus-30 from plus-24, driven by heightened demand for construction materials linked to disaster recovery efforts.

Looking ahead, manufacturers anticipate a modest improvement in sentiment to plus-23 over the next three months, while non-manufacturers foresee their index falling further to plus-21. Several manufacturers have expressed concern that strong AI-related demand may eventually wane, while service-sector firms expressed worry that inflation is eroding household purchasing power.