Japan's June 2026 Economy Shows Recovery, Supported by Semiconductor and AI Sectors; Yen Weakness and High Energy Costs Pressure Profits, Middle East Agreement Eases Outlook Uncertainty

Teikoku Databank Co., Ltd. has conducted and compiled a survey on the domestic economic trends for June 2026, targeting 22,572 companies nationwide (10,413 valid responses, response rate 46.1%), and published the results as the Economic DI.

Key Points of the Survey Results

The Economic DI for June 2026 rose 1.0 point to 42.6, marking two consecutive months of improvement. The domestic economy continued to recover, supported by factors such as semiconductors and AI-related sectors driving stock prices to record highs, and improved capital investment sentiment. While a rebound is expected in the near term, the outlook suggests a moderate recovery lacking strong momentum due to rising costs and interest rates.

Nine industries, including 'Finance' and 'Manufacturing,' improved, while 'Retail' was the only sector to deteriorate. Demand for IT infrastructure, centered on semiconductors, generative AI, and data centers, remained solid. By company size, all categories improved for the first time in four months, supported by semiconductor-related demand and positive sentiment regarding the resolution of Middle East tensions. Regionally, all ten areas improved for the first time in three years and one month since May 2023, with redevelopment demand and electronic components acting as positive factors.

[This Month's Topic] The policy interest rate was raised to 1%, raising concerns among many businesses about rising costs and weak consumer spending.

The next announcement is scheduled for August 5 (Wednesday) at 13:30.

[Call for Companies to Participate in the TDB Economic Trend Survey]

This survey is Japan's largest monthly business conditions survey, with cooperation from over 23,000 companies nationwide. Companies interested in participating are requested to read the survey's purpose and enter the required information via the registration form.

※ Participating companies can access the 'Trend Tables for Various DIs' and 'List of Corporate Voices' from this survey.

(Details of benefits available here)

< June 2026 Trend: Improvement >

The Economic DI for June 2026 rose 1.0 point to 42.6, marking two consecutive months of improvement. The domestic economy continued to improve, supported by semiconductors and AI-related sectors driving stock prices to record highs, and improved capital investment sentiment.

In June, demand for digitalization and labor-saving solutions in AI-related fields expanded. High-level wage increases and seasonal demand for air conditioners also supported the economy. Additionally, the Nikkei 225 index surpassed 70,000, reaching a new record high, reflecting a strong financial market, which served as a positive factor. Furthermore, the ceasefire agreement between the U.S. and Iran eased future uncertainty, contributing positively. On the other hand, the Bank of Japan's interest rate hike, rising crude oil and energy prices, and persistently high procurement costs acted as negative factors.

< Outlook: Moderate Improvement >

Going forward, the economy is expected to continue its upward trend in the short term, supported by wage increases, summer bonuses, summer-related demand such as heatwaves and travel, and government growth investments and inflation countermeasures that support household purchasing power. However, rising procurement prices due to yen depreciation and high oil prices, production adjustments, as well as policy interest rate hikes and rising long-term interest rates, will weigh on capital investment and housing demand.

While a rebound is expected in the near term, the future economic outlook suggests a moderate recovery lacking strong momentum due to high costs and rising interest rates.

By Industry: 9 out of 10 Industries Improved, with Notable Recovery in 'Finance,' 'Manufacturing,' and 'Construction'

Nine industries, including 'Finance' and 'Manufacturing,' improved, while 'Retail' was the only sector to deteriorate. A high-performing stock market boosted the finance sector, while demand for IT infrastructure, centered on semiconductors, generative AI, and data centers, remained solid. Additionally, recovering construction demand and tenant demand served as positive factors. On the other hand, personal consumption-related sectors such as retail, dining, and accommodation remained sluggish amid ongoing cost-saving trends driven by high prices.

'Finance' (48.4)... up 2.5 points month-on-month, improving for the first time in five months. With the policy interest rate hike, voices citing improved loan interest margins and increased interest income were heard, lifting sentiment in banks and other institutions. Additionally, the Nikkei 225 index reaching the 70,000 range in the latter half of the month contributed to the positive trend. Furthermore, government policies promoting cashless payments served as a positive factor.

'Manufacturing' (42.2)... up 1.8 points, improving for the second consecutive month. 'Electrical Machinery Manufacturing' (up 2.3 points) and 'Machinery Manufacturing' (up 3.2 points), both benefiting from strong orders in semiconductor and data center-related fields, improved for two consecutive months. 'Transportation Machinery and Equipment Manufacturing' (up 0.9 points) also improved for two consecutive months, with reports of stable orders from some automakers and increased workload in shipbuilding-related fields. On the other hand, 'Food, Beverage, and Feed Manufacturing' (down 0.2 points) deteriorated for the fourth consecutive month, affected by rising raw material prices, tight procurement conditions for packaging materials, and delayed price pass-throughs.

'Services' (46.5)... up 0.3 points, improving for the first time in four months. 'Information Services' (up 0.3 points), which had maintained a high level due to IT infrastructure demand, improved for the first time in six months. 'Maintenance, Security, and Inspection' (up 1.1 points) recovered after four months, benefiting from increased events and revised security fees. With manufacturing and construction sectors recovering operations, demand for labor acquisition rose, lifting 'Personnel Dispatch and Introduction' (up 0.6 points). On the other hand, 'Inns and Hotels' (down 4.5 points) declined again due to unstable weather and deteriorating consumer sentiment.

'Retail' (37.3)... down 0.1 points, deteriorating for the first time in two months. 'Automotive and Parts Retail' (down 1.6 points), with sluggish activity in both new and used cars, declined for four consecutive months. 'Textile, Textile Products, and Apparel Retail' (down 4.2 points) showed continued weakness, with reports of 'holding back purchases' (men's apparel retail) due to stagnant personal consumption. On the other hand, 'Home Appliances and Information Equipment Retail' (up 1.1 points) continued to improve for four consecutive months, supported by seasonal demand for air conditioners and similar products.

By Company Size: All Sizes Improve for the First Time in Four Months, with Semiconductor-Related Demand Providing Support

'Large Enterprises,' 'Small and Medium Enterprises,' and 'Small-Scale Enterprises' all improved for the first time in four months. Semiconductor-related demand continued to act as a support, while expectations of resolution in the Middle East situation also had a positive impact. 'Small-Scale Enterprises' recovered into the 40s for the first time in three months, driven by contributions from 'Construction' and other sectors.

'Large Enterprises' (46.9)... up 1.0 point month-on-month, improving for the second consecutive month. The 'Services' sector lifted overall sentiment, with reports of 'semiconductor-related fields such as memory being active due to AI demand, especially among large enterprises.' 'Construction' also contributed, benefiting from strengthened national resilience policies.

'Small and Medium Enterprises' (41.8)... up 0.9 points, improving for the second consecutive month. In 'Manufacturing,' 11 out of 12 sub-industries improved, including 'Machinery Manufacturing' boosted by strong semiconductor-related performance, recovering into the 40s for the first time in three months. This improvement extended to 'Wholesale' of steel and machinery.

'Small-Scale Enterprises' (40.0)... up 0.8 points, improving for the first time in four months and recovering into the 40s. 'Construction' recovered into the 40s for the first time in two months, supported by progress in price pass-throughs, lifting the overall index. On the other hand, 'Retail,' including 'Textile, Textile Products, and Apparel Retail,' deteriorated.

By Region: All 10 Regions Improve for the First Time in 3 Years and 1 Month, with Redevelopment Demand as a Positive Factor

All ten regions improved for the first time in three years and one month since May 2023. By prefecture, 41 improved and 6 deteriorated. Infrastructure demand from redevelopment projects boosted regional economies, while electronic components continued to act as a supporting factor.

'Hokkaido' (42.0)