By Leika Kihara

Tokyo (Reuters) –

Sentiment in Japan’s service sector improved slightly in June, according to a government survey released on Tuesday, as strong demand for summer clothing and leisure activities helped offset concerns regarding U.S. tariffs.

However, the number of corporate bankruptcy cases in the first half of this year increased by 2.4% from the previous year, reaching a 12-year high of 5,003, as rising raw material and labor costs squeezed profit margins, a survey by private think tank Teikoku Databank revealed.

This data underscores the fragile state of Japan’s economy, which is expected to face increasing pressure from U.S. tariffs in the coming months. Analysts note that U.S. President Donald Trump announced new tariffs of 25% on Japanese goods set to take effect on August 1.

An index measuring sentiment among firms close to consumers stood at 45.0 in June, marking an increase of 0.6 points from May, according to the government’s “economy watchers” survey. Additionally, an index that gauges sentiment for the next three months rose to 45.9, up 1.1 points from May, indicating two consecutive months of improvement.

A clothing outlet in Hokkaido noted that with rising temperatures, customer purchases of summer goods have increased. A drugstore in western Japan reported rising sales volume despite price increases.

Japan’s economy contracted in the first quarter, and analysts fear the impact of U.S. tariffs will escalate later this year, raising the possibility of a recession—defined as two consecutive quarters of negative growth.

Recent data showed that real wages fell in May at the fastest rate in nearly two years. The government delivered its bleakest economic assessment in five years, as an index used to gauge economic booms and busts fell in May.

Economic Revitalization Minister Ryosei Akazawa expressed confidence that substantial wage hikes and government stimulus measures could support a moderate economic recovery but acknowledged the increasing risks posed by U.S. tariff measures affecting the economy.