Confidence among Japan’s biggest manufacturers has slipped for a second straight quarter, according to a key central bank survey released Monday.
The Bank of Japan’s tankan report — a quarterly survey of about 10,000 companies — showed a reading of 21 among major manufacturers in its June survey against 24 in the March report.
The manufacturers surveyed include automakers and electronics companies that are the mainstay of Japan’s economy.
Exports are vital to Japan, and trade friction over President Donald Trump’s tariffs as well as other nations’ reactions to the changes in U.S. policy, including China and Europe, could impact many industries.
The latest tankan, however, was seen as unlikely to make economists pessimistic about the world’s third-largest economy, with the headline index still close to its highest level in over a decade.
The report, which is the broadest indicator of how Japan Inc. is faring, marks the difference between the percentage of firms that are upbeat and those that see conditions as unfavorable.
“The second straight quarterly decline is certainly not good, but the level of (business confidence) is still high,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.
“We are not facing a recession phase, but the pace of economic expansion is slowing down,” he said.
The survey came after solid job market-linked data, released on Friday, including Japan’s jobless rate for May that slumped to a 26-year low.
Confidence fell among motor-vehicle makers and electronics makers as the average predicted yen rate for the business year from April appreciated to ¥107.26 to the dollar in the latest survey, from ¥109.66 predicted in March.
A strong yen is negative for Japanese exporters as it makes their products less competitive abroad and erodes profits when repatriated.
“Decline in the auto sector — even though their sales are strong — reflects geopolitical risks,” including Trump’s threat of tariffs, Shinke said.
And yet, concerns over protectionist policies “so far have not affected plans of capital investment nor demand-supply conditions,” he added.
The sentiment among iron and steel-makers, and among nonferrous metals makers, also slipped, amid lingering worries over the U.S. move to impose hefty tariffs on steel and aluminum.
The index for nonmanufacturers edged up to 24 from 23, the first rise in the past four quarters.
But confidence among retailers dropped to 0 from 11, which Shinke said “is a slight concern.”
“Consumption is not that bad but is not strong enough to lead an economic expansion,” he said.
Japan’s economy slid into negative territory for the first time in two years at the beginning of the year, technically ending its longest period of expansion since the “bubble” days of the 1980s.
But the contraction by 0.2 percent quarter-on-quarter in the January-March period does not suggest a recession, economists say.
Economists argue Japan is on a solid recovery path on the back of a global recovery, with investments linked to the Tokyo 2020 Olympics also giving the economy a shot in the arm.