Japan Factory Mood Hits 5-Year High as Service Sector Sentiment Slumps

Key Facts

1The Reuters Tankan manufacturers index rose to +22 in October, reaching its highest level since December 2021.

2The non-manufacturers index fell sharply to +23 from +29, its lowest level since November 2024.

3The service sector reported negative impacts from higher interest rates, rising raw material costs, and weak household spending.

The Reuters Tankan manufacturers index rose to +22 in October, reaching its highest level since December 2021. Reuters reported that the gain was driven by strong global demand for semiconductor equipment, which boosted the precision machinery sector by nine points to +38. Conversely, the non-manufacturers index fell sharply to +23 from +29, marking its lowest level since November 2024.

The service sector reported negative impacts from higher interest rates, rising raw material costs, and weak household spending, with food producers suffering the steepest decline of 15 points. These results arrive as the central bank weighs the pace of tightening after raising its policy rate to 1.25% in September. In related economic data, Japan's annual retail sales grew by 2.7% on September 29, 2026, missing the 3.3% forecast, while monthly industrial production contracted by 1.7% on the same date.