Japan business sentiment rises for manufacturers as AI demand grows

Japan's quarterly Tankan survey reveals a divergence in business sentiment. Large manufacturers reported improved business conditions for the sixth consecutive quarter, with the index rising to 24 in the July-September period. This growth is largely attributed to robust demand in the artificial intelligence and semiconductor sectors, as well as the ability of manufacturers to pass on increased energy costs to consumers.

In contrast, sentiment among large non-manufacturing companies declined for the first time in five quarters, falling to 35. This downturn is linked to rising costs for oil and labor, alongside decreased demand resulting from price hikes. Additionally, external factors such as geopolitical tensions in the Middle East and domestic disruptions from weather events have impacted the retail and service sectors.

While industrial production saw a monthly decline of 1.7% in August, manufacturers expect a rebound in the coming months. The mixed data highlights a manufacturing sector bolstered by high-tech demand, even as domestic consumption and non-manufacturing sectors face cooling momentum.