Japan’s Manufacturing PMI Falls to 53.3 in October as Demand and Output Slow

Key Facts

Japan’s preliminary S&P Global manufacturing Purchasing Managers’ Index fell to 53.3 points in October from 54.1 in September, marking its slowest pace of expansion in seven months, according to Reuters via Investing.com. The flash reading was published on 23 October and remained above the 50-point threshold that separates growth from contraction. But the slowdown in the index was accompanied by weakness in key components of demand and output. Manufacturers recorded their slowest increase in output since March, while new orders grew at their weakest pace since the same month. Even so, factory output expanded for 10 consecutive months, its longest such run since 2018, according to S&P Global.

The slowdown also extended to external demand, with new export business across Japan’s private sector increasing at its slowest pace in four months in October. S&P Global, however, said new orders came from North America, China and other Asian economies. The firm attributed some support for manufacturing to demand related to artificial intelligence and the weakness of the local currency. Survey participants also said customers’ stockpiling of safety inventories helped support demand. These factors show that sources of demand remained in place, even as growth in orders and output lost some momentum compared with previous months.

In the labor market, private-sector job creation slowed to a 14-month low, while business confidence in activity over the coming year fell to its lowest level since July. In manufacturing, employment rose at a moderate pace, according to the preliminary October reading cited by Reuters. Companies increased purchasing activity, leading to the largest build-up in stocks of purchases in nearly four years. The combination of weaker hiring and confidence with higher inventories suggests companies continued to secure production inputs while becoming less optimistic about the outlook for activity. This divergence did not end output growth, but it showed that signs of fading momentum had broadened in the survey.

Input-cost pressures accelerated slightly in October as raw-material and labor costs rose, according to Reuters. S&P Global said significant supply-chain delays, mainly linked to the war in the Middle East, contributed to higher cost pressures for manufacturers, alongside rising raw-material and fuel costs. Companies continued to raise selling prices, but output-price inflation slowed to a four-month low, according to the Reuters report. In S&P Global’s reading, overall selling-price inflation fell to a joint nine-month low. The firm said competition limited companies’ ability to pass higher costs on to customers, leaving a mixed trend of higher production inputs and less rapid increases in selling prices.

Japan’s composite output index held at 52.3 points in October, continuing to signal expansion in private-sector activity for a 19th consecutive month. In services, the business activity index rose to 52.0 points from 51.3 in September. The readings show that improvement in services activity partly offset weaker momentum in manufacturing in the broader private-economy picture. The Bank of Japan had forecast in its October Outlook Report that the economy would continue growing at a moderate pace during fiscal 2026, albeit more slowly. The bank pointed to the impact of higher energy and raw-material prices since the spring on activity, which aligns with the cost pressures reported by companies in the October survey.

At its meeting on 30 October, the Bank of Japan maintained its short-term interest-rate guidance at around 1.25% and adopted its money-market operations guidance by an 8-to-1 vote. In the same decision, the bank increased the pace of sales of its exchange-traded fund holdings to around 860 billion yen a year on a book-value basis, with the change due to take effect in January 2027. The bank said it would continue raising interest rates and adjusting the degree of monetary easing in response to developments in activity, prices and financial conditions. It added that its assessment takes into account factors including Middle East risks, demand related to artificial intelligence and foreign-exchange movements. It also said inflation risks are tilted to the upside and set its next monetary policy meeting for 17 and 18 December 2026.