Japan’s Manufacturing Index at 53.3 in October as Demand and Output Momentum Ease
Key Facts
Japan’s final manufacturing purchasing managers’ index (PMI) came in at 53.3 in October, down from 54.1 in September and its lowest reading in seven months, Reuters reported. The index remained above 50, the level separating activity growth from contraction, indicating a slower expansion in manufacturing rather than a contraction. The final result followed the flash reading published on 23 October and confirmed that growth had lost some momentum as the fourth quarter began. Phil Smith of S&P Global Market Intelligence said output and order growth had not maintained their earlier pace during the year. But he described the expansion at the start of the fourth quarter as “good by historical standards.”
Industrial output rose for a tenth consecutive month, but its rate of increase was the weakest since March, Reuters reported. New orders also increased for a tenth month, although their growth was the slowest in seven months. Companies linked improved demand to market conditions and AI-related demand, while semiconductor demand supported output. Orders from overseas markets also helped keep demand supportive for Japanese factories. S&P Global said AI-related demand and the weaker local currency supported manufacturing expansion, while customers’ stockpiling of safety inventories also helped bolster demand for Japanese goods.
External demand remained supportive, but export order growth was the weakest since March, Reuters reported. Survey participants cited stronger demand from Asian markets, including China, as well as North America, Africa and the Middle East. This meant that continued demand from several markets did not prevent export growth from slowing compared with previous months. Meanwhile, the backlog of work accumulated at a faster pace, while employment growth remained close to its fastest rate in the past eight and a half years. This final picture differed from the flash reading, which had prompted a weaker impression of employment; manufacturers’ confidence in the coming year also rose to its highest level in eight months, with companies citing new product launches, the AI boom and new customer relationships.
Purchasing inventories rose at the fastest pace in nearly four years as companies sought to hedge against further price increases, Reuters reported. On the cost side, input price inflation accelerated in October, while selling price inflation slowed to its lowest level in six months. S&P Global linked the deterioration in supplier performance to supply chain delays, attributed mainly to the war in the Middle East. Participants also cited higher costs for raw materials, fuel, wages and imports. By contrast, overall selling price inflation fell to a joint nine-month low, and the firm said competition had limited companies’ ability to pass higher costs on to customers.
Broader activity indicators provide additional context for the factory reading: the flash composite output index registered 52.3 in October for a second consecutive month. S&P Global said the reading pointed to quarterly GDP growth of about 0.5% in the fourth quarter. The composite index averaged 52.9 in the third quarter, before October’s reading began at a level closer to the second-quarter average of 52.0. The firm said the second-quarter average was associated with GDP growth of 0.4% in that quarter. In its outlook, the Bank of Japan said the economy would continue growing at a moderate, though slower, pace in fiscal 2026, supported by global demand related to AI, government measures and accommodative financial conditions, while higher energy and raw material prices since early spring posed a headwind.
The Bank of Japan’s decision on 30 October added monetary policy context to the activity reading, with the bank saying it would encourage the uncollateralized overnight call rate to remain at around 1.25%. In its outlook, the bank said risks to prices were tilted to the upside, with risks including the situation in the Middle East, AI-related demand and foreign exchange movements. These risks put the path of energy and raw material costs among the factors the bank is monitoring alongside activity indicators. The Bank of Japan scheduled its next monetary policy meeting for 17 and 18 December 2026. The meeting follows October data showing continued growth in output and orders, alongside a softer pace of expansion and increased input cost pressures.