Japan's Manufacturers Hold Firm; Services Slip on Cost Pressures

Japan's manufacturers held steady in July while service-sector confidence slipped, the latest Reuters Tankan survey showed, pointing to a split in the economy that leaves the Bank of Japan's rate path dependent on whether price increases become entrenched.

The manufacturers' index stayed at plus-13 from June, supported by semiconductor and AI server demand. One manager at a precision machinery maker described order volumes and values as unprecedented, adding that capacity constraints were becoming a concern. Orders for electronic components were rising broadly, the survey found.

Non-manufacturers' sentiment eased to plus-25 from plus-32. Cost pressures from the Middle East conflict and a weak yen weighed on the sector, with rising interest rates adding to the squeeze. A manager in the service sector said that although signs of a resolution to the conflict were emerging, the situation had not fully recovered.