Japan’s Business Survey Index for large manufacturers unexpectedly fell to -1.8% in the second quarter of 2026 from 3.8% in Q1, the first negative reading since the second quarter of 2025. The latest reading missed market expectations of 4.2%, as businesses were weighed down by the Middle East conflict and surging oil prices. This heightened concerns about a potential economic slowdown, renewed inflationary pressures in Japan, and uncertainty over monetary policy. Looking ahead, manufacturing sentiment is expected to return to positive territory at 4.4% in Q3 and accelerate to 5.8% in Q4. The index, based on a survey of major manufacturers, remains a key barometer for an economy where industrial output plays a central role.