Japan manufacturers' mood hits near 5-year high on semiconductor demand: Reuters poll

Japanese manufacturers' confidence rose to near a five-year high in September, driven by strong semiconductor and data centre demand, according to a Reuters monthly poll. The Tankan sentiment index for manufacturers climbed to plus-21 from plus-18 in August, indicating a steady recovery after a low of plus-7 in April. Non-manufacturers' sentiment slightly improved to plus-29 from plus-28, remaining within a consistent range for the year.

The electronics sector was the primary contributor to the manufacturing sector's boost, with its sub-index surging to plus-39 from plus-24. This surge was attributed to the significant demand for data centre-related products, largely fueled by AI-related capital spending. Other sectors, such as precision machinery and metal products, also showed positive trends.

However, steel and non-ferrous metal sectors remained negative. On the non-manufacturing side, real estate and construction sectors saw a rise in sentiment, while transport and utilities also improved. Conversely, the information/communications and retail sectors experienced a decline. Looking ahead, manufacturers anticipate a further increase in sentiment to plus-27, while non-manufacturers predict stability at plus-27.

Potential downside risks include Middle East tensions, raw material costs, and weakening domestic consumption.