AI just sent Japan’s factories back to 2018-level order growth

Japan’s S&P Global Flash Manufacturing PMI rose to 55.1 in August, up from 54.5 the previous month. New orders surged at their fastest rate since January 2018. This growth was driven by major international AI clients, including foundries, chipmakers, and data center operators.

For producers of components and equipment in Japan, the report suggests that investment in AI is continuing to promote industrial activity in the country.

Where are the orders coming from

The July regional survey of the Bank of Japan, released on the 9th, provides a clearer understanding of what is pushing the demand. According to branch managers, orders for equipment used in semiconductor production and electronic components have increased with the ongoing growth of global AI investment. At the same time, demand starts to move into other sectors such as equipment for electrical power generation, communications equipment, and industrial molds.

Hard production data confirms the trend. According to a revision by the Ministry of Economy, Trade and Industry issued on August 17, Japan’s industrial production index improved to 104.6 in June, seasonally adjusted data reflecting an increase of 1.9% compared to May and 4.9% year-on-year. The factory’s operating ratio, which is an indicator of how much factory work went up by 4.1% since the previous month.

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