Tokyo, Oct. 1 (Jiji Press)–Business sentiment among large manufacturers in Japan improved for the sixth straight quarter, partly due to increasing demand related to artificial intelligence and semiconductors, the Bank of Japan’s quarterly survey for September showed Thursday. The headline diffusion index for large manufacturers’ current business conditions rose to plus 24 from plus 22 in the previous June survey, hitting the highest level since March 2018. Manufacturers of production and electric machinery led the improvement, buoyed by the AI- and chip-linked demand. Basic materials industries, including petroleum and coal product makers and steelmakers, also performed well, as they passed on higher material costs to consumers. AI-related demand also supported small and midsize businesses. The DI for such companies advanced from plus 9 to plus 14, its highest level since December 2018. The DI shows the percentage of companies seeing good business conditions minus that of businesses feeling the opposite. Meanwhile, the current business condition DI for large nonmanufacturers worsened for the first time in five quarters, falling to plus 35 from plus 37. Deterioration at accommodation and food service providers and retailers, affected by unstable weather conditions, was conspicuous. But sentiment improved in the construction industry amid increasing demand for data centers. The outlook DI toward December stood at plus 21 for large manufacturers and plus 30 for large nonmanufacturers. The bearish outlook stemmed from rising costs amid persisting concerns over the Middle East situation and from higher labor costs. Other negative factors included worries about a possible demand decline resulting from higher prices and adverse effects of natural disasters including heavy rain. The survey’s data collection reference date was Sept. 9, meaning that the BOJ’s policy interest rate hike in June was factored into the survey, while the September hike was not. Corporate funding conditions and financial institutions’ lending attitudes remained mostly unchanged. “From the macroeconomic perspective, the impact of the June interest rate hike has not spread,” a BOJ official said. The price outlook among businesses of all sizes and industries remained high. Prices are forecast to rise 2.6 pct in one year, against the projection of 2.7 pct in the previous survey. The respondents also expect a year-on-year rise of 2.6 pct in three years and 2.5 pct in five years. Amid progress in moves to reflect higher costs in prices, ordinary profits at large manufacturers for fiscal 2026 are expected to rise 13.6 pct from the previous year, led by the processing industry. Large manufacturers’ capital spending plans remained strong, envisioning growth of 11.6 pct. But the pace is slower than that of profits, probably because of higher materials prices and personnel shortages. The average assumed exchange rate at businesses of all sizes and industries stood at 154.23 yen per dollar, against 152.57 yen in the previous survey. END [Copyright The Jiji Press, Ltd.]
