The Reuters Tankan index for Japanese manufacturers rose to +7 in July 2025 from +6 in June, marking the first improvement in three months. The uptick was driven largely by a rebound in the semiconductor sector, despite lingering concerns over US trade tariffs. Looking ahead, manufacturers anticipate further improvement, projecting sentiment to reach +8 by October. Notably, the electronics machinery sector index climbed to -4 in July from -16 in June, while the chemicals index rose to +18 from +12, with several firms citing recovering chip demand as a key factor. In contrast, the transport machinery sector, which includes Japan’s vital automobile industry, saw its index drop sharply to +9 from +20. Some executives attributed the decline to the impact of the 25% US auto tariffs, which have weighed on export volumes and increased operational costs. While overall sentiment remains positive, manufacturers continue to closely watch evolving US trade policy as a potential risk factor.