Japan: July manufacturing sentiment holds up on AI demand

Research evidence excerpt

Japan: July manufacturing sentiment holds up on AI demand

J P M O R G A N Japan Economic Research

15 July 2026

Japan: July manufacturing

sentiment holds up on AI demand

The July Reuters Tankan survey delivered a mixed picture across sectors. Economic and Policy Research

Sentiment among large manufacturers was unchanged at 13—one of the stronger Takuho Morimoto

readings in the post-pandemic period—and exceeded our expectation for a two- (81-3) 6736-6682

point decline. The sector breakdown suggests that robust AI-related demand takuho.morimoto@jpmorgan.com

continues to underpin manufacturers’ confidence. The three-month outlook index JPMorgan Securities Japan Co., Ltd.

edged up 1 point from June to 14. By contrast, sentiment among large non-

manufacturers fell 7pts to 25, a four-month low and weaker than we expected. This

likely indicates that cost pressures—particularly from wage increases and yen

depreciation—are becoming a more meaningful headwind. However, the three-

month outlook index for non-manufacturers improved 6pts from June to 25. If

domestic demand remains strong, as we expect, higher costs could translate into

stronger pass-through to consumer prices.

Within manufacturing, gains were concentrated in AI-related sectors, with the

textile sector the exception. The electronics index jumped 14 points to 29, its

highest level since 2021. The chemicals index rose 3pts to 23, likely supported by

steady demand for semiconductor materials. The precision machinery index

increased 2pts to 33, with a Reuters report noting historically high order levels.

Outside these sectors, the tone was softer: the auto sector index dropped 13pts to

0, extending weakness since March, while the food index remained deeply

negative at -33.