FX.co ★ Japan Factory Optimism Fades Slightly in May

In May 2025, the Reuters Tankan index for Japanese manufacturers experienced a slight decline, dropping to 8 from April's eight-month peak of 9. This slight dip signifies a modest decrease in business confidence. Companies forecast a worsening of conditions in the coming three months, primarily attributed to the ambiguity surrounding evolving US tariff policies. While business sentiment remains positive, there is an increasingly cautious outlook. This caution is a reaction to Japan's economic downturn in the first quarter and the escalating risks posed by global trade tensions. Several firms have reported that US trade policies have either delayed or halted capital investment, exacerbating the challenging business environment. On the contrary, the transport sector saw a boost in confidence, reaching its highest level since December 2023, fueled by increased vehicle production. Nevertheless, companies within the transport and metal products industries anticipate a downturn in sentiment, pointing to uncertainties in tariffs, rising inflation, and a faltering Chinese economy as key concerns.