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Confidence among large manufacturers in Japan has surged to its highest level in nearly five years, driven by robust demand for semiconductors, according to the latest Reuters Tankan index. The index for manufacturers increased to +22 in October from +21 in September, marking the highest reading since December 2021. Notably, the precision machinery sector, which includes chip equipment manufacturers, saw a significant rise, with one firm reporting orders at about one and a half times normal levels for the past four months.
In contrast, the service sector is facing challenges, with the non-manufacturers index dropping to +23 from +29, its lowest since November 2024. Food producers experienced the most significant decline, plummeting 15 points to -40 due to rising raw material costs and weakened consumer demand. Other sectors, including retail and information communications, also reported declines, attributing their struggles to higher interest rates and reduced household spending.
The Bank of Japan is closely monitoring these developments as it considers further monetary tightening following a recent rate increase to 1.25% in September. The divergence between the thriving manufacturing sector and the struggling service sector suggests a cautious approach to future rate hikes, as highlighted by Bank of Japan board member Ayano Sato. Manufacturers anticipate a modest improvement in sentiment over the next three months, while service firms expect further declines, indicating ongoing economic pressures.
Source: KLEA News