Japan Loses Economic Momentum, Sees Early Signs of Iran Impact
By Reuters | 07 Apr, 2026

The private study found an increase in bankruptcies in the house painting sector with its severe competition, chronic labour shortage, surging fuel costs and war-induced supply constraints.

An index measuring the health of Japan's economy slid in February, government data showed on Tuesday, highlighting a soft spot in the economy even before it faced fallout from the Iran war.

A recent private survey also showed an increase in bankruptcy cases in the house painting sector, where small, mom-and-pop operators already suffering from severe competition and chronic labour shortage have been hit by surging fuel costs and supply constraints caused by the conflict.

The coincident indicator index, which measures the current state of the economy, slipped 1.6 points month-on-month in February to 116.3, the data showed, falling for the first time in two months.

The drop was due largely to declining shipments of semiconductor chips and chip-making equipment, as well as a drop in auto output, casting doubt on the Bank of Japan's view that robust global demand will support exports.

Countries like Japan that rely almost entirely on imports of Middle Eastern oil and naphtha are facing growing challenges as hopes for a swift end to the war fade. A shortage of naphtha would hit factory output, intensifying the damage to the broader economy from the current quarter, analysts say.

In a sign of the strain, the number of painting firms going bankrupt rose 22.2% in the fiscal year that ended in March, the highest level in 23 years, private think tank Tokyo Shoko Research said.

Given disruptions to naphtha supplies, major paint producers have pushed up thinner prices by 70% to 80% from March, delivering a blow to small painting operators, Tokyo Shoko Research said in a report released on April 3.

"Fierce competition means it may not be easy for small operators to pass on rising costs. As such, the number of bankruptcy cases may rise further in fiscal 2026," it said.

(Reporting by Leika Kihara; Editing by Joe Bavier)