Japan business mood sours in April-June as Middle East war hits

Japanese business sentiment soured in the second quarter of 2026, marking the first downturn in a year and indicating growing economic pressure attributed to the conflict in the Middle East. A government survey revealed a significant decline in the mood among major corporations.

The index measuring the sentiment of big companies dropped to -0.5 percentage points during April-June. This contrasts sharply with the positive reading of +4.4 points recorded in the January-March period, signaling a notable shift towards pessimism.

Small and medium-sized enterprises (SMEs) are experiencing even more pronounced difficulties. The index gauging sentiment among small firms saw a substantial slump, falling to -17.6 points from -12.9 points in the preceding quarter. This indicates a worsening economic outlook for smaller businesses.

The survey, compiled by the Ministry of Finance, measures the difference between companies reporting improving business conditions and those experiencing a decline. The widespread negative sentiment suggests that the ongoing Middle East conflict is having a tangible impact on Japan's economic landscape, affecting both large corporations and smaller enterprises.