Japanese businesses are entering 2026 with heightened anxiety over diplomatic strains with China and uncertainty surrounding U.S. trade policies, according to a Reuters survey published Thursday. Relations between Tokyo and Beijing have worsened since Prime Minister Sanae Takaichi suggested last month that a hypothetical Chinese attack on Taiwan could trigger a Japanese military response.
When asked about the most pressing issues for next year, 25 percent of survey respondents pointed to tensions with China, while 22 percent highlighted U.S. trade regulations. Both nations remain critical trading partners and suppliers of rare earth minerals, essential in sectors ranging from automobiles and electronics to defense technology.
Recent incidents have amplified these concerns. Japan reported that Chinese fighter jets targeted radar at Japanese military aircraft, an assertion China denied. Despite geopolitical worries, corporate sentiment on earnings is relatively optimistic. About 40 percent of companies expect growth in the fiscal year starting April 1, citing the ability to pass on rising costs and continued demand for semiconductors.
Roughly 33 percent of respondents forecast single-digit earnings gains, and 7 percent anticipate double-digit increases. In contrast, 14 percent expect a decline, while 46 percent predict earnings will remain largely unchanged. A transportation firm executive noted, “The cost of labour and other expenses are rising, but passing on costs through prices has enabled us to secure profit.” Electronics manufacturers credited robust chip demand for their positive outlook.
Industry analysts at World Semiconductor Trade Statistics project the global semiconductor market, driven by artificial intelligence demand, will grow over 26 percent to reach $975 billion in 2026.
The survey, conducted by Nikkei Research for Reuters between November 26 and December 5, reached 494 companies, with 236 responding under conditions of anonymity. Two-thirds of respondents supported Prime Minister Takaichi’s proposal to relax the annual primary budget balance as a fiscal consolidation target, describing the move as prudent. The adjustment aims to allow more flexible multi-year spending while easing strict commitments to fiscal tightening.
“Although we might see interest rates go up as a result, we would welcome the possibility of it creating a flow of funds to necessary investment,” said a representative from a non-ferrous metals firm. Japan’s debt exceeds twice the size of its economy, making fiscal management a longstanding challenge.
Currency expectations show further caution. About 55 percent of respondents anticipate the yen will trade between 150 and 160 per U.S. dollar in 2026, while 41 percent forecast a firmer range of 140 to 150 yen. Companies appear to be balancing optimism about domestic growth with the reality of geopolitical and financial pressures.
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