Iran oil shock dents Japan manufacturers’ confidence

A monthly survey of Japanese manufacturers showed sentiment fell 11 points to +7 in April, the largest monthly decline since January 2023 and the first contraction in three months.

Companies attributed the decline to higher oil prices linked to the Iran war and to supply disruptions in the Strait of Hormuz, which raised costs and reduced availability of oil-derived inputs.

Japan imports about 95% of its crude oil from the Middle East, increasing exposure to shipping and price disruptions in Gulf routes.

Materials industries were the hardest hit. Sentiment in the chemicals sector moved from +21 to -8 as firms reported surging raw material costs and increased difficulty securing inputs. Several companies reported unstable procurement and constrained shipments, and some are reassessing production and sales plans for the rest of the year.

Other manufacturing segments recorded smaller declines. Transport machinery, including automakers, registered a more moderate fall in confidence amid rising cost pressures and reduced visibility on supplies.

Manufacturers expect sentiment to weaken further to +2 by July. By contrast, non-manufacturing sentiment rose to +31, supported by steady domestic demand in construction, real estate and services, where respondents cited ongoing capital expenditure and resilient housing activity.

Survey participants warned that prolonged disruption to Gulf shipping or sustained higher energy costs could delay investment decisions and weigh on exports and industrial output.

Factory confidence weakened while non-manufacturing confidence strengthened, creating a gap between export-linked manufacturing and domestic services.