Business sentiment in Japan deteriorated sharply in Q2, with the Ministry of Finance’s survey revealing a broad-based loss of confidence across industries.
The overall index for large firms slipped into negative territory at -1.09, down from Q1’s modest 2.0. Large manufacturers saw sentiment weaken further from -2.4 to -4.8, while large non-manufacturers experienced a steep drop from 5.2 to -5.7, suggesting that economic uncertainty is spreading beyond export-heavy sectors.
The survey also highlighted a growing sense of earnings pessimism. Large manufacturers now expect recurring profits to decline -1.2% in the fiscal year ending March 2026, a downgrade from the -0.6% fall seen in the previous survey. Particularly alarming is the auto sector’s outlook, with automakers and parts suppliers projecting a severe -19.8% drop in profits.
This highlights the mounting concern over the impact of steep US tariffs, which threaten to hit Japan’s flagship export industry hard and weigh on broader economic momentum.
