Japan's manufacturing sector growth accelerated in August, propelled by strong demand for semiconductors and artificial intelligence-related products,

The final S&P Global Japan Manufacturing Purchasing Managers' Index (PMI) rose to 54.9 in August from 54.5 in July. While easing slightly from the flash estimate of 55.1, the reading marked the highest level since April and the second-steepest expansion since January 2022. A reading above 50 indicates improved sector performance, while anything below signals contraction.

The increase in new business was the sharpest seen since January 2018 due to a rise in new orders, particularly from the technology sector, which saw the most significant increase in over eight and a half years, S&P said.

New export orders surged the quickest since 2018 following demand coming from North America, Southeast Asia, and China, according to S&P.

Employment also surged amid an expansion of operating capacity, with job creation rates accelerating the fastest since February 2018, S&P said.

Despite the rise in demand, price pressures are still a "key concern" due to the tensions in the Middle East, with costs impacted by chokepoints in the Strait of Hormuz, but "there are tentative signs that delivery delays have eased somewhat over the past two months," S&P Global Market Intelligence Economics Associate Director Annabel Fiddes said in a note.

Japan's manufacturing sector remained optimistic about output increases over the next year in August, with positive sentiments the highest in six months.

Companies also expect further increases in customer demand for AI and semiconductors, according to S&P Global.