Japan’s service sector sentiment improves in June, but concerns over U.S. tariffs and rising bankruptcies still cloud the outlook.
While Japan’s service sector saw a modest boost in June thanks to rising summer demand, concerns are growing over the potential economic fallout from newly announced U.S. tariffs.
Modest Recovery in Service Sector Sentiment
According to the latest government report, confidence within Japan’s service sector improved slightly in June. This uptick was driven primarily by an increase in consumer demand for summer clothing and leisure-related goods, temporarily offsetting anxiety over new U.S. trade measures.
Corporate Bankruptcies Hit 12-Year High
Nevertheless, signs of economic vulnerability remain. A report by private think tank Teikoku Databank revealed that corporate bankruptcies in the first half of 2025 rose 2.4% year-on-year, reaching 5,003 cases—the highest level in 12 years. Rising input and labor costs were cited as key factors squeezing corporate profit margins.
Government’s “Economy Watchers” Survey Shows Cautious Optimism
The Cabinet Office’s “Economy Watchers” survey, which gauges sentiment among businesses closely tied to consumers, showed a slight improvement. The current conditions index rose 0.6 points from May to 45.0 in June. While still below the neutral 50-point threshold, the modest gain signals some resilience in domestic demand.
Meanwhile, the outlook index for the next three months climbed 1.1 points to 45.9, marking the second consecutive month of improvement and hinting at cautious optimism among service providers.
Market Voices Reflect Seasonal Boost
Much of the improvement appears to be seasonal. A clothing retailer in Hokkaido reported increased customer demand due to rising temperatures, while a drugstore in western Japan noted higher sales volumes despite price hikes, suggesting that consumer appetite remains relatively firm—at least for now.
U.S. Tariffs Pose a Serious External Threat
Despite these encouraging signs, the risk of recession continues to loom. Japan’s economy contracted in the first quarter of 2025, and many analysts expect the situation to worsen in the months ahead. On Monday, U.S. President Donald Trump announced a 25% tariff on certain Japanese imports effective August 1, a move that could severely disrupt Japan’s export-driven sectors.
Falling Real Wages and Pessimistic Economic Assessment
Adding to the pressure, data released Monday showed real wages in May declined at the fastest pace in nearly two years. The government also issued its bleakest economic assessment in nearly five years, citing a significant slide in key business cycle indicators.
Government Officials Respond to Mounting Concerns
Economic Revitalization Minister Ryosei Akazawa struck a cautiously hopeful tone, stating that robust wage increases and ongoing government stimulus efforts are expected to support a moderate recovery. However, he acknowledged the growing threat: “The risk of direct and indirect impacts from U.S. tariff measures is increasing,” he said at a Tuesday press conference.
Conclusion
In light of these developments, Japan’s economic outlook hinges heavily on the government’s ability to counter external shocks and maintain domestic demand. The coming months will be critical in determining whether the modest rebound in the service sector can withstand mounting global headwinds.
