By Makiko Yamazaki
TOKYO, April 15 (Reuters) - Japanese manufacturers' confidence posted its biggest month-on-month drop in more than three years in April, dampened by surging oil prices and supply-chain disruptions caused by the Middle East conflict, the Reuters Tankan poll showed.
The monthly survey, a leading indicator of the Bank of Japan's closely watched quarterly Tankan business sentiment index, showed manufacturers' sentiment fell 11 points to plus 7 in April, marking the biggest monthly drop
since January 2023 and the first decline in three months.
The poll, conducted between April 1-10, showed how the Iran war eroded recent optimism - underpinned by strong chip-led demand - as the closure of the Strait of Hormuz choked Gulf energy shipments and disrupted global supply chains.
Japan is dependent on the Middle East for some 95% of its oil supply, making firms highly sensitive to any disruption.
Materials industries bore the brunt of the downturn, with sentiment in the chemicals sector sliding into negative territory at minus 8 from plus 21 in March.
"Raw material costs are rising and procurement has become unstable due to the Middle East situation," said a manager at a chemicals company. Another respondent in the sector said shipments were being constrained by limited raw material supply.
One manager at a pulp and paper company said production and sales plans for the rest of the year were under review due to concerns over securing oil-based materials.
By contrast, confidence in the transport machinery sector, including automobiles and auto components, suffered a more moderate pullback, with the index dipping to plus 20 from plus 36.
Sentiment among non-manufacturers improved to plus 31 in April from plus 25 in March, supported by steady demand in construction, real estate and information services despite rising costs.
Respondents in construction and real estate pointed to firm private-sector capital expenditure and resilient housing demand, with one firm saying that private-sector investment shows no sign of fading.
The Reuters Tankan poll surveyed 492 major non-financial firms, with 212 responding on condition of anonymity. The indexes are calculated by subtracting the percentage of pessimistic respondents from the percentage of optimistic ones, with positive figures indicating net optimism.
Looking ahead, manufacturers expect sentiment to deteriorate further, with the outlook index seen falling to plus 2 in July. Non-manufacturers' sentiment is seen easing to plus 14.
"If the Iran conflict becomes prolonged, our clients are likely to hold off on investment," a manager at a machinery maker said.
(Reporting by Makiko Yamazaki; Editing by Kevin Buckland)
