Business sentiment among Japan's large manufacturers hit an eight-year high, driven by demand for artificial intelligence (AI) investment despite high oil prices stemming from the Middle East.
The diffusion index (DI) for Japan's large manufacturers in the second quarter, released by the Bank of Japan on Tuesday, rose 5 points from the previous quarter to plus 22. This marked the highest level in about eight years. The diffusion index is the figure obtained by subtracting the percentage of companies that answered business conditions were "bad" from the percentage that answered "good." A higher positive figure indicates better sentiment felt by Japanese companies. With this, the large manufacturers' DI extended its improving trend for a fifth consecutive quarter.
The strong sentiment among large manufacturers in the second quarter was analyzed to have been led by solid demand in the AI and semiconductor sectors. Japan's large manufacturers' outlook for three months ahead came in at plus 17, down 5 points from the second quarter. This appears to reflect concerns over cost burdens from continued high oil prices.
The diffusion index for Japan's large non-manufacturers rose 1 point to plus 37, setting a new high in about 35 years. However, the three-month outlook index came in at plus 28, worsening by 9 points.
Sentiment felt by small and medium-sized enterprises was lower than that of large companies, with the diffusion index for small and medium-sized manufacturers surveyed at plus 9 and non-manufacturers at plus 15.
