By Leika Kihara
TOKYO (Reuters) -Confidence among large Japanese manufacturers improved in the three months to June, a central bank survey showed, as firms maintained their bullish long-term spending plans, unfazed by the immediate potential hit from steep U.S. tariffs.
However, manufacturers slashed their profit estimates and expect business conditions to worsen three months ahead, the closely watched “tankan” survey showed on Tuesday, suggesting firms see pain from U.S. tariffs deepening later this year.
Sentiment among big non-manufacturers worsened slightly as some companies worried about rising labour costs, the impact of higher prices on domestic consumption and softening demand for luxury goods among overseas tourists.
The survey suggests the world's fourth-largest economy remains relatively resilient, even with increasing global trade uncertainty. It will be one of the data points the Bank of Japan scrutinises at its next policy meeting on July 30-31.
“The Q2 Tankan survey showed that the economy is holding up well despite trade tensions, which supports our view that the Bank of Japan will resume its tightening cycle before the end of the year,” said Marcel Thieliant, head of Asia-Pacific at Capital Economics.
The headline index measuring big manufacturers' business confidence stood at +13 in June, up from +12 in March and beating a median market forecast for a reading of +10.
While some firms complained about the hit from U.S. tariffs, others saw profits improve as they passed on rising costs, said a BOJ official briefing reporters on the survey.
By contrast, an index gauging big non-manufacturers' sentiment edged down to +34 from +35 in March with companies citing a hit to profits from rising labour costs.
Both big manufacturers and non-manufacturers expect business conditions to worsen three months ahead, the tankan showed.
Japan's economy, which shrank an annualised 0.2% in the first quarter due to weak consumption, is bracing for further pain as U.S. tariffs hurt exports.
Tokyo has so far failed to convince U.S. President Donald Trump's administration to scrap a 25% tariff on Japanese cars and a 24% tariff on other Japanese imports paused until July 9.
Trump expressed frustration with U.S.-Japan trade negotiations on Monday, dampening prospects of a near-term deal.
PROFIT HIT
Corporate activity is holding up, at least for now.
Big companies expect to increase capital expenditure by 11.5% in the current fiscal year ending in March 2026, up from a 3.1% gain projected in March and above a market forecast for a 10.0% rise.
