Japanese manufacturers experienced a marked deterioration in business sentiment in April, with optimism plunging sharply amid rising oil costs and interruptions to global supply chains tied to the Middle East conflict, the Reuters Tankan monthly poll found.
The survey showed manufacturers' confidence slid 11 points to plus 7 in April, marking the largest month-on-month drop since January 2023 and ending a three-month streak of gains. The poll, carried out between April 1 and April 10, underscored how recent upbeat views - largely driven by strong chip-related demand - were undercut by developments in the Gulf that have constrained energy flows and raised input costs.
Drivers of the decline
Respondents linked the weakening sentiment to a surge in oil prices and to supply-chain disruptions after the closure of the Strait of Hormuz reduced shipments of Gulf energy and disrupted logistics. Japan relies on the Middle East for roughly 95% of its oil needs, making firms acutely sensitive to interruptions in that region.
Materials industries were most affected by the shift in sentiment. The chemicals sector swung from optimism to net pessimism, with its index moving to minus 8 in April from plus 21 in March. Managers cited rising raw material costs and unstable procurement as immediate pressures.
"Raw material costs are rising and procurement has become unstable due to the Middle East situation," said a manager at a chemicals company.
Another respondent in the sector said shipments were being constrained by limited raw material supply.
One manager at a pulp and paper company said production and sales plans for the rest of the year were under review due to concerns over securing oil-based materials.
By comparison, the transport machinery sector - which includes automakers and parts suppliers - saw a softer retreat, with its sentiment index falling to plus 20 from plus 36 in March.
Services and non-manufacturing firms
Non-manufacturing sentiment improved in April, rising to plus 31 from plus 25 the previous month. The poll noted steady demand in construction, real estate and information services as supporting factors despite elevated costs. Respondents in construction and real estate highlighted continued private-sector capital expenditure and resilient housing demand, with one firm observing that private-sector investment shows no sign of fading.
Near-term outlook
Looking ahead, manufacturers expect further softening: the outlook index is projected to fall to plus 2 in July. Non-manufacturers anticipate a decline as well, with their outlook seen easing to plus 14. Firms expressed concern that a prolonged Iran conflict could prompt clients to delay investment decisions.
"If the Iran conflict becomes prolonged, our clients are likely to hold off on investment," a manager at a machinery maker said.
Poll methodology
The Reuters Tankan survey reached out to 492 major non-financial firms, with 212 companies providing responses on condition of anonymity. The indexes are computed by subtracting the percentage of pessimistic respondents from the percentage of optimistic respondents, with positive figures indicating net optimism.
Overall, the poll paints a picture of an industrial sector whose recent momentum has been interrupted by elevated energy prices and disrupted supply chains, while parts of the services economy continue to show resilience.