Japan: July SME sentiment rises, but price concerns linger

Research evidence excerpt

J P M O R G A N

Japan Economic Research

10 August 2026

Japan: July SME sentiment rises,

but price concerns linger

In the July Economy Watchers Survey, sentiment among small and medium-sized

enterprises (SMEs) regarding current conditions surprised to the upside, rising 1.7

points to 45.7 (JPM: 44.3, Consensus: 44.5). While the index remains below the

pre-Middle East conflict level of 48.9 in February, the initial shock continues to

fade. The improvement is underpinned by resilient demand – such as a broad-based

pickup in capex and strong domestic consumer appetite for durable goods.

However, concerns about future price rises have not been dispelled. This is

reflected in the outlook index for the next 2-3 months: the improvement in the

outlook index was limited, coming in at 45.8, only 0.1 point above the currentconditions index.

The improvement in the July current-conditions index was driven by gains in the

employment and household-related sub-indices. Commentary notes that job

openings continue to trend upward, and that more hiring tied to new business

launches and capacity expansion has gradually begun to emerge. As for the

household-related index, some respondents point out that rising prices continue to

curb consumer spending behavior to some extent, leaving the household index at

a relatively low level. Even so, demand appears to be on an improving trend, with

signs such as a recovery in demand for home appliances and automobiles, as well

as a rebound in tourism demand since the start of the summer season. Because the

July survey was conducted in July 25-31, the impact of PM Takaichi’s Cabinet

decision to implement a consumption tax cut may not be fully reflected. We expect

inflation to rise towards year-end; however, we also expect solid wage growth and

expectations for the tax cuts to continue supporting sentiment among consumers

and household-related businesses.

In the business activity-related indices, both manufacturing and nonmanufacturing improved, but the rebound in non-manufacturing – which had

lagged after the Middle East conflict – has been particularly notable since June.

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