A private sector survey released on Thursday indicated that Japan's manufacturing activity expanded at a more moderate pace in September compared with the prior month, reflecting deceleration in both output and new orders, though robust overseas demand continued to underpin business conditions. The flash au Jibun Bank Japan Manufacturing Purchasing Managers' Index (PMI) from S&P Global slipped to 54.1 in September from 54.9 in August, with readings above 50.0 signaling expansion and those below indicating contraction.
The key sub-index tracking factory output posted its slowest growth in three months, while the pace of new orders eased to a four-month low, although both measures have now remained in expansion territory for nine consecutive months. New export orders stayed resilient, supported by persistently strong demand from abroad. Manufacturing employment grew solidly once again, helping to push overall private sector job creation to its fastest rate in seven months.
Sentiment among manufacturers regarding business prospects for the coming year climbed to the highest level since February, with firms attributing the optimism to sustained demand in areas such as AI-related technologies, semiconductors, defense, and the automotive sector. The services sector also lost some momentum, as the flash services PMI dropped to 51.6 in September from 52.5 in August. The composite PMI, which combines both manufacturing and services, slipped to 52.5 from 53.5 in August, marking the slowest rate of expansion since May.
Cost pressures facing Japan's private sector eased slightly but remained elevated by historical standards. Input price inflation was driven by a weak yen, rising energy and raw material costs stemming from conflict in the Middle East, as well as higher labor and transportation expenses. Annabel Fiddes, Economics Associate Director at S&P Global Market Intelligence, commented that the data reveals encouraging signs for business confidence and employment conditions, yet companies also expressed concerns that high prices and relatively subdued domestic demand could hamper their operational performance.