Japan PMI shows slower factory growth

Japan’s manufacturing sector grew in October but at its weakest pace in seven months, as the flash S&P Global Japan Manufacturing Purchasing Managers’ Index fell to 53.3 from 54.1. A reading above 50.0 signals expansion, so the index still indicates growth, but at a slower rate than in September.

Manufacturers logged the weakest rise in output since March, while goods producers recorded the slowest increase in new orders since March.

Across Japan’s private sector, export orders continued to grow but at the slowest pace in four months, adding to signs that external demand is becoming less supportive. Overall new business rose at the slowest pace in three months, indicating a broader easing in demand conditions beyond manufacturing alone.

While factories cooled, services activity improved in October. The flash S&P Global Japan Services PMI Business Activity Index rose to 52.0 from 51.3, reflecting a stronger increase in business activity and faster sales growth in the services economy.

The pickup in services helped keep the broader economy on an expansion path. The S&P Global Flash Japan Composite PMI Output Index, which combines manufacturing and services, was unchanged at 52.3, marking the 19th consecutive month of expansion in private‑sector activity. However, this pace matched the joint‑slowest since May and remained weaker than the average for the year to date.

Across the private sector, new business inflows and export demand both showed signs of cooling even as overall output continued to rise. The combination of stronger services and weaker manufacturing suggests that growth is becoming more reliant on domestic-oriented activities.

Japan’s firms continued to add staff in October, but hiring momentum slowed. Job creation eased to a 14‑month low across the private sector, indicating that companies are becoming more cautious about expanding their workforce.

Business confidence also deteriorated. Expectations for the year ahead weakened to their lowest level since July, with firms reporting that inflation concerns were weighing on their outlook.

In manufacturing, factory employment rose at a moderate pace, and firms increased purchasing activity. This led to the largest accumulation in stocks of purchases in almost four years, suggesting that companies continued to build inventories despite the slowdown in output and orders.

Cost pressures intensified slightly in October. Input cost inflation accelerated, driven by higher raw material and labour costs. Higher energy prices also contributed to the increase in input costs.

Despite stronger input inflation, firms’ ability or willingness to pass these costs on appeared more limited. Businesses continued to raise selling prices, but output charge inflation eased to a four‑month low, signalling some moderation in final price increases.

Taken together, the data depict an economy that is still expanding but with softer factory momentum, weaker hiring, and rising costs. Final October PMI readings for manufacturing, services, and the composite index are due in early November and will provide a fuller picture of how these trends evolve.