Artificial intelligence-related investments have helped Japan’s manufacturing industry enter a recovery, with the sector posting an 8% year-on-year net profit increase in the April-December 2024 period after a 6% decrease in April-September.
Nikkei compiled data from 331 manufacturing companies, excluding subsidiaries of listed parent companies, that had announced their results for the April-December 2024 period as of February 7. They account for 70% of manufacturing companies that have fiscal years ending in March, or 80% by market capitalization.
More than half the companies, 59%, posted profit increases, up 5 percentage points year-on-year and exceeding 50% for the second consecutive year.
Benefits from AI-related investments are spreading, particularly in the semiconductor material field. Food and biotech company Ajinomoto posted record high profits in April-December on strong sales of insulating materials, in which it controls a large market share.
Chemical group Asahi Kasei recorded a 68% increase in net profit on strong sales of plastics used in chipmaking. Sumitomo Chemical increased sales in cleaning chemicals used in chipmaking, while Sekisui Chemical was boosted by tapes for securing substrates.
The spread of generative AI is driving demand for data centers and related power infrastructure equipment. Strong sales of optical devices and power cables lifted profits at Sumitomo Electric.
Mitsubishi Heavy Industries enjoyed growth in gas turbines for power plants, raising its net profit forecast for the year ending March. “We are receiving steady orders even now,” said CFO Hisato Kozawa.
Software companies like NEC and Fujitsu tapped into demand from companies in other sectors for AI services to help improve efficiency, posting 2.1-fold and 3.5-fold profit increases, respectively.
“The market was concerned about the impact of the economic downturn in China and Europe, but many companies are seeing their performance improve, especially in the areas of AI semiconductors and data centers, so a sense of relief is spreading,” said Maki Sawada, a strategist at Nomura Securities.
The weak yen also helped lift profits. The average exchange rate for April-December was about JPY 152 to the dollar, around JPY 9 weaker than the same period in 2023.
This accounted for 40% of Mitsubishi Electric’s operating profit increase, or JPY 31 billion (USD 205 million). The figure for TDK was JPY 16.8 billion (USD 111.1 million), about 30% of its total.
Amid the overall solid earnings in manufacturing, the automobile and steel industries are struggling. Mazda Motor announced on Friday that its net profit for the April-December period was down 45% due to intensifying competition in the US and elsewhere that led to increased sales incentives.
Mitsubishi Motors’ profits fell by 68% due to worsening profitability in Southeast Asia and the US Toyota Motor, which raised its full-year forecast, recorded a 4% increase in profits in April-December.
For steelmakers, the market worsened due to overproduction by China and declining demand at home and abroad. Nippon Steel profits decreased 18% while JFE Holdings revised its net profit forecast for the year ending March downward.
As of February 7, total net profits of all listed companies for April-December were up 11% year-on-year. In addition to the manufacturing recovery, non-manufacturing industries are also performing well.
“Many companies have revised their forecasts for the year ending March 2025 upward, which is supporting stock prices,” said Yugo Tsuboi, chief strategist for Japan and US equities at Daiwa Securities.
The combined net profit forecast of listed companies for the fiscal year is up 4% from last year as of February 7.
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.