Japan factory activity growth slows in October as cost pressures rise

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Japan factory growth October

Highlights

Japan Manufacturing PMI slips to 53.3 in October from 54.1 in September, indicating slower but continued factory expansion led by semiconductor demand.
Export order growth drops to its weakest since March despite ongoing support from Asian, North American, African, and Middle Eastern markets, while input price inflation accelerates.
Stocks of purchases climb at the fastest pace in nearly four years as firms hedge against rising costs, while business optimism hits an eight-month high on new product and AI-related opportunities.

October PMI points to slower manufacturing momentum

As reported by Reuters, citing S&P Global, the Japan Manufacturing Purchasing Managers' Index eases to 53.3 in October from 54.1 in September, staying above the 50 threshold that separates growth from contraction.

Factory output rises for a 10th straight month, supported by higher order volumes and stronger semiconductor demand, but the pace is the softest since March. New orders also increase for a 10th consecutive month, with firms citing more favourable market conditions and AI-related demand strength, although that increase is also the weakest in seven months.

Phil Smith, economics associate director at S&P Global Market Intelligence, says the sector is unable to sustain the faster rates of growth seen earlier in the year, but is still showing a decent pace of expansion by historical standards at the start of the fourth quarter.

Export demand and pricing trends shape outlook

Overseas demand remains supportive, although export order growth slows to its weakest level since March. Survey respondents point to stronger demand from Asian markets including China, as well as North America, Africa and the Middle East.

Employment growth holds steady and stays close to the fastest level seen in the past eight-and-a-half years, while backlogs of work accelerate and some firms report input delivery delays. Input price inflation accelerates in October, while output charge inflation eases to a six-month low.

Stocks of purchases rise at the fastest rate in almost four years as manufacturers seek to protect themselves against further price increases. Even with slower growth and higher costs, optimism for the year ahead edges up to an eight-month high on expectations tied to new product launches, the AI boom and new client introductions.

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