Japan manufacturers remain optimistic on chip demand amid rising service costs

Japan’s manufacturing sector is having a moment. The latest Reuters Tankan survey, published June 17, shows factory sentiment climbing for the second consecutive month, hitting a positive index of +13 in June, up from +8 in May. The driving force behind this optimism is something crypto markets know well: insatiable demand for chips.

The chemicals industry, which supplies critical materials to semiconductor fabrication, saw the most dramatic swing. Its sentiment index jumped to +20 from +6, a move that reflects just how deeply Japan’s chip revival is reshaping industrial confidence across the supply chain.

The semiconductor tailwind

Japan has been methodically rebuilding its position in the global semiconductor ecosystem. Government subsidies and flagship initiatives like the Rapidus project, which aims to achieve 2nm chip production by 2027, are injecting real momentum into the sector.

The survey collected responses from 215 of 490 firms between June 3 and June 12. A positive index means more companies reported favorable conditions than unfavorable ones.

Services sector tells a different story

While factories are riding high, Japan’s services sector is hitting a wall. PMI data from early June showed the sector stagnating after more than a year of expansion. The culprit is straightforward: costs are surging.

Input prices driven by the ongoing Middle East conflict have pushed output price inflation to a 12-year high. In English: businesses are paying more for everything and passing those costs along to customers at rates not seen since 2014.

Non-manufacturers did show a slight sentiment improvement, with the Tankan index ticking up to +32 from +29. Real estate and construction activity provided the lift. But the forward-looking picture is less encouraging.

The September outlook for non-manufacturers is projected to fall to +19, a significant drop that reflects growing anxiety about inflation, geopolitical instability, and supply chain disruptions.

The transport machinery sector looks particularly exposed, with a forecast score of -13 by September 2026.

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