Japan’s manufacturing sector expanded at a stronger pace in August, supported by a sharp rise in new orders. According to a preliminary business survey released on Friday, new orders increased at their fastest rate since January 2018.
Japan Manufacturing PMI Rises in August
The S&P Global Flash Japan Manufacturing Purchasing Managers’ Index (PMI) climbed to 55.1 in August, up from 54.5 in July.
A PMI reading above 50 indicates expansion, while a figure below 50 signals contraction. The latest result therefore points to continued growth across Japan’s manufacturing sector.
Annabel Fiddes, economics associate director at S&P Global Market Intelligence, said growth momentum improved across both manufacturing and services. However, factories continued to lead the expansion, with strong increases in production and new orders.
New Orders and Overseas Demand Strengthen
Japanese manufacturers recorded their strongest increase in total sales and overseas demand in more than eight and a half years.
Companies linked much of the improvement to strong demand from the semiconductor and artificial intelligence industries.
This stronger demand helped manufacturers increase production while also supporting employment growth during August.
Japan’s Economy Slowed in the Second Quarter
The positive manufacturing data comes after figures released earlier in the week showed that Japan’s economy slowed during the second quarter.
However, investors largely looked past the weaker gross domestic product reading. Market participants viewed much of the slowdown as the result of temporary or one-off factors rather than a significant deterioration in economic conditions.
The latest PMI data could therefore ease some concerns about the strength of Japan’s private sector.
Manufacturers Increase Hiring and Purchases
Manufacturing companies led employment growth in August as businesses responded to rising demand.
Firms also increased their purchases of production inputs. However, inventories of purchased materials rose only slightly.
At the same time, supplier delivery times lengthened considerably, suggesting continued pressure on supply chains as factory activity increased.
Japan Services Sector Also Improves
Growth was not limited to manufacturing.
The S&P Global Flash Japan Services PMI Business Activity Index increased to 52.3 in August, compared with 51.2 in July.
Stronger manufacturing and services activity pushed the Composite Output Index to 53.4, up from 52.7. This marked its highest level since February.
The figures suggest that growth momentum is becoming more broadly distributed across Japan’s private sector.
Inflation Pressures Begin to Ease
Cost pressures also showed signs of easing in August.
Overall input-price inflation across Japan’s private sector slowed to a five-month low, following June’s near-record pace.
However, companies continued to pass higher costs on to customers. Selling prices for both goods and services increased at one of the fastest rates recorded by the survey.
As a result, inflation remains an important factor for businesses and policymakers to monitor.
Business Confidence Reaches Six-Month High
Japanese companies also became more optimistic about the economic outlook.
Business confidence rose to its highest level since February, with manufacturers reporting greater optimism than companies in the services sector.
Businesses cited expectations of stronger sales, increased operational capacity and improved market conditions as major reasons for the brighter outlook.
Fiddes said the latest figures support expectations that Japan’s private sector could remain resilient in the months ahead, provided that the economy avoids significant new shocks to prices or demand.
Overall, August’s PMI figures suggest that Japan’s manufacturing sector continues to gain momentum, supported by stronger orders, improving exports and rising demand from semiconductor and AI-related industries.
