Japan economic data shows AI-driven manufacturing growth amid service sector cost pressures

Recent economic indicators in Japan reveal a diverging landscape between manufacturing and service sectors. According to the Bank of Japan’s September Tankan survey, large manufacturer business sentiment improved for the sixth consecutive quarter, reaching its highest level since March 2018. This growth is primarily driven by robust global demand for artificial intelligence (AI) and semiconductors, which has also spurred increased capital investment.

In contrast, the non-manufacturing sector has faced challenges. The Tankan survey noted a decline in sentiment for large non-manufacturers due to rising costs for raw materials and labor. Specifically, the hospitality and food service industries have struggled with these cost pressures and unpredictable weather.

Complementing these findings, Teikoku Databank reported that the business sentiment index for inns and hotels improved for the second consecutive month in August. This recovery is attributed to rising accommodation demand and higher average guest spending, supported by sustained inbound tourism. However, concerns remain regarding future economic stability, as businesses anticipate potential headwinds from inflation, rising labor costs, and geopolitical uncertainties in the Middle East.