Japan’s manufacturing sector showed signs of a strong and sustained recovery in August, with new orders expanding at their fastest pace since January 2018, driven by robust global demand for semiconductors and artificial intelligence (AI)-related products.
The S&P Global Japan Manufacturing Purchasing Managers’ Index (PMI) rose to 54.9 in August, up from 54.5 in July. The reading marked the highest level since April and represented the eighth consecutive month of expansion above the 50-point threshold, although it was slightly below the preliminary estimate of 55.1.
Annabel Fiddes, Associate Director of Economics at S&P Global Market Intelligence, said Japan’s manufacturing sector continued to demonstrate solid growth, with technology-related industries and strong AI demand serving as key drivers of the expansion.
At the same time, cost pressures eased for the second consecutive month. The rate of input-price inflation slowed to its lowest level since March, while output-price inflation also eased to its lowest level since April.
However, price pressures remain elevated compared with historical levels, as higher raw material and oil costs stemming from tensions in the Middle East, supply-chain bottlenecks around the Strait of Hormuz, and a weaker yen continued to weigh on manufacturers, Fiddes noted.
Japanese manufacturers also became more optimistic about the outlook for the year ahead. Business confidence rose to its highest level in six months, remaining above its long-term average. Companies cited stronger market conditions, new product launches, and rising demand for semiconductors and AI-related technologies as key factors behind the improved outlook.
The continued strength of AI and semiconductor demand is expected to provide an important tailwind for Japan’s manufacturing sector, while the improving business outlook could pave the way for a brighter recovery in private-sector investment in the months ahead.