Japan's factory mood jumps to five-year high as chip demand roars

The Reuters Tankan sentiment index for manufacturers rose to plus-27 in November from plus-22 in October, the highest reading since August 2021. Non-manufacturers jumped to plus-35 from plus-23, a level not seen since June 2018. The monthly poll ran from October 27 to November 6 and drew responses from 214 of 508 firms, with indexes built by subtracting pessimistic answers from optimistic ones.

Electronics led the charge, with sentiment surging to plus-39 from plus-25. A manager at an electronics machinery company put it plainly: semiconductor demand, especially for memory, is very strong. Precision machinery, home to chip-related equipment makers, improved to plus-42 from plus-38, with one manager reporting robust orders at home and abroad and another describing shipments for the semiconductor market as reaching an unprecedented level.

Elsewhere in manufacturing, oil refinery and ceramics climbed to plus-25 from plus-14, while chemicals rose to plus-33 from plus-27. On the services side, information and communications rocketed to plus-29 from plus-8 on strong orders, and services and others leapt to plus-43 from plus-19. One manager said tight labour market conditions persist, keeping demand for talent high.

The poll acts as a leading indicator for the Bank of Japan's quarterly Tankan survey. Looking three months ahead, manufacturers expect sentiment to nudge up to plus-28 in February, while non-manufacturers see it easing to plus-29. Rising prices and higher interest rates weighed on both camps, with some firms struggling to pass their increased costs on to customers.