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Japan Factory Sentiment Rises for Second Month on Chip Demand; Near-Term Outlook Dims

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Japan Factory Sentiment Rises for Second Month on Chip Demand; Near-Term Outlook Dims

Japanese manufacturers' sentiment improved for a second straight month in June, driven by strong demand from the semiconductor sector.

The Reuters Tankan manufacturers' index climbed to plus-13 in June from plus-8 in May, according to the monthly poll conducted from June 3 to June 12 across 215 responding firms out of 490 polled.

The print beat the Trading Economics forecast of plus-9.

Non-manufacturers' sentiment also rose to plus-32 from plus-29 the previous month.

The Reuters Tankan is a monthly leading indicator for the Bank of Japan's quarterly Tankan business survey, which measures current business conditions and economic outlook.

The chemicals sub-index led the improvement, jumping to plus-20 from plus-6, as companies cited sustained demand for semiconductors.

"Despite geopolitical tensions, demand remains robust, especially in semiconductor-related sectors," a manager at a ​chemical company was quoted by Reuters as saying.

Electronics and machinery makers also reported improving sentiment, with order books likewise supported by demand for chips.

On the services side, real estate and construction confidence contributed to the non-manufacturing gain.

"Despite rising costs, demand for housing remains robust, and we are seeing a steady flow of new projects," a manager in the real estate industry reportedly said.

However, companies flagged a more cautious outlook in the near term amid concerns over geopolitical risks and supply chain challenges, said Reuters.

Manufacturers expect sentiment to hold at plus-13 in September, suggesting that momentum will remain positive, but not accelerating. Non-manufacturers forecast a sharper drop to plus-19 from plus-32.

The transport machinery sector is among the most pessimistic across Japan's industries for the second half, with the index for the sector anticipated to fall to minus-13 in September from plus-13 in June.

"We are facing ongoing challenges in sourcing materials due to geopolitical tensions," a transport ⁠machinery company ​manager was quoted by Reuters as saying.

The June Tankan survey arrives against a backdrop of moderating inflation and manufacturing activity.

Japan's annual core inflation eased to a four-year low of 1.4% in April from 1.8% in March, missing the consensus forecast of 1.7% tracked by Investing.com. It remained below the Bank of Japan's 2% inflation target.

On Tuesday, the BOJ raised its policy rate to a three-year high of 1% from 0.75%, as widely expected. It marked the first since December.

"With underlying inflation approaching 2%, we need to be mindful ​of upward price risks. We will guide policy so that we won't fall behind the curve," Deputy Governor Shinichi Uchida told a news conference on ⁠behalf of Governor Kazuo Ueda, who missed the meeting to undergo medical treatment.

On the activity side, the S&P Global Japan Manufacturing PMI slipped to 54.5 in May from April's 51-month high of 55.1 as input costs and selling prices rose at among the sharpest rates on record.

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