Japan’s October factory growth slows as costs pick up, PMI shows

Japan's manufacturing sector slowed to its sluggishest expansion in seven months during October, according to a business survey released on Monday. The S&P Global Japan Manufacturing Purchasing Managers' Index (PMI) for October fell to 53.3, down from 54.1 in September, indicating contraction rather than growth. This signals that the sector's output and new orders lost momentum during the month.

The index has remained above the 50-mark threshold that separates growth from contraction, suggesting a modest expansion. However, the pace of output growth was the softest since March, while the increase in new orders was the slowest in seven months. This deceleration suggests that Japan's factories are struggling to maintain the rapid growth rates observed earlier in the year.

Phil Smith, an Economics Associate Director at S&P Global Market Intelligence, noted that while the sector has not sustained its earlier growth rates, it still exhibits a decent pace of expansion at the start of the fourth quarter. The overseas demand remained supportive, with export order growth being the weakest since March.

Survey respondents cited stronger demand from Asian markets, including China and North America, as a key factor behind the sector's resilience. Employment growth remained steady, holding close to the fastest seen in the past eight-and-a-half years. However, the backlog of work accelerated, with some manufacturers reporting input delivery delays.

In addition, input price inflation accelerated in October, although output charge inflation eased to a six-month low. Firms increased their stocks of purchases at the fastest rate in almost four years, likely as a precaution against further price rises. Manufacturers' optimism about the year ahead also edged up to an eight-month high, driven by new product launches, the AI boom, and new client introductions.