Key facts
- Japanese business sentiment declined in April-June, marking the first downturn in four quarters.
- The index for large companies' sentiment fell to -0.5% in Q2, down from +4.4% in Q1.
- Small firms' sentiment index dropped to -17.6 points from -12.9 points.
- Corporate bankruptcies in Japan increased for the fourth consecutive year in fiscal 2025.
- Rising costs due to the Middle East conflict are squeezing corporate profits.
- New Zealand's manufacturing activity contracted slightly in May, falling to 49.9.
- Manufacturers cited weak demand and global economic pressures as concerns.
Japanese business sentiment soured in the April-June quarter for the first time in four quarters, according to a government survey. The decline signals growing economic strain, with the conflict in the Middle East cited as a key factor.
The index measuring sentiment among large companies fell to -0.5% in the second quarter, a decrease from the +4.4% recorded in the January-March period. Sentiment among small firms also worsened, with their index slumping to -17.6 points from -12.9 points in the previous quarter.
This downturn coincides with a rise in corporate bankruptcies, which increased for the fourth consecutive year in fiscal 2025, reaching 10,425 cases. Teikoku Databank warned that bankruptcies could further increase from the summer of 2026 due to rising costs stemming from the Middle East conflict, which has led to surging oil prices and supply disruptions.
Concerns are growing among firms about increased input costs, affecting a wide range of products from fuel and chemicals to construction materials and fertilizers. A separate government survey indicated that business sentiment had already weakened in March, reflecting uncertainty over the Middle East conflict. Bank of Japan regional managers have also cautioned that the conflict's impact on oil costs and supply chains could hinder economic recovery.
Separately, New Zealand's manufacturing activity contracted slightly in May, slipping back into negative territory after seven months of expansion. The seasonally adjusted Performance of Manufacturing Index fell to 49.9 from 50.4 in April, with manufacturers citing weak demand and global economic pressures.