Summary
- Japan’s flash composite PMI held at 52.3 in October as faster services growth offset the weakest factory output rise in seven months, while job creation slowed to a 14-month low and input cost inflation edged higher ahead of next week’s BoJ meeting.
The survey gives the BoJ a mixed but broadly workable backdrop: steady growth and persistent cost pressure support further policy normalisation, while weaker hiring and softer demand argue for a gradual pace. For the yen, the data are unlikely to shift expectations much on their own, coming alongside this morning’s above-forecast core-core CPI reading. In JGBs, the combination of solid activity and sticky input costs is consistent with the market keeping a December hike in play. For equities, the slowdown in manufacturing new orders and export business is a mild headwind for exporters. Raw material costs remain a key pressure point, and sustained high oil prices linked to the Middle East conflict are likely to keep input cost inflation elevated into year-end.
Japan’s private sector kept growing in October, but slowing factory momentum, weaker hiring and rising costs suggest the expansion is becoming more fragile as the BoJ weighs its next move.
- The S&P Global flash Japan composite PMI output index was unchanged at 52.3 in October, the 19th straight month of expansion but the joint-slowest pace since May.
- Services activity rose to 52.0 from 51.3, while the manufacturing PMI fell to 53.3 from 54.1 and manufacturing output dropped to 53.1 from 54.9, a seven-month low.
- New orders grew at the slowest pace in three months, led by the weakest rise in factory orders since March. New export business rose at the softest rate in four months.
- Job creation slowed to a 14-month low, with services payrolls falling for the first time since August 2025, even as backlogs grew at the fastest pace since June.
- Input cost inflation edged higher on raw material and labour costs, while output price inflation stayed sharp but slowed to a four-month low.
- Business confidence fell to its lowest in three months, with inflation a key concern.
Japan’s private sector continued to expand in October, but growth remained subdued as a slowdown in manufacturing was offset by stronger services activity, according to flash survey data from S&P Global. Hiring slowed sharply and cost pressures increased, adding to the mixed picture facing the Bank of Japan ahead of next week’s policy meeting.
The S&P Global flash Japan composite PMI output index was unchanged at 52.3, marking the 19th consecutive month of growth but matching the slowest pace since May. Services business activity improved to 52.0 from 51.3, while manufacturing lost momentum. The headline manufacturing PMI fell to 53.3 from 54.1, and the factory output index dropped to 53.1 from 54.9, its weakest reading in seven months.
Demand softened. New business rose at the slowest pace in three months, as goods producers reported the weakest growth in new orders since March. Services sales growth picked up but remained modest. Foreign demand was still positive, though new export orders grew at the slowest rate in four months.
The labour market was a notable weak spot. Even though backlogs of work grew at the fastest pace since June, firms were cautious about adding staff, and job creation slowed to a 14-month low. Manufacturers increased their workforces moderately, but services companies cut payrolls for the first time since August 2025. Manufacturers also stepped up their purchasing, building inventories of inputs at the fastest rate in almost four years, while supplier delivery times lengthened substantially.
Price pressures remained a central theme. Input cost inflation edged higher and was marked overall, with firms pointing to higher raw material and labour costs. Companies continued to raise selling prices sharply, though the rate of output price inflation slowed to a four-month low. Businesses still expect output to be higher in a year’s time, but confidence fell to its lowest in three months, with inflation a key concern.
Usamah Bhatti, economist at S&P Global Market Intelligence, said overall growth was weaker than the average so far this year. He pointed to signs of a shift in momentum from manufacturing towards services as the year draws to a close. Bhatti described inflation as a key downside risk for the private sector and said it will be important to monitor domestic demand, given that the BoJ has raised its policy rate to 1.25%, the highest since 1995.
The survey was released shortly after national inflation data showed core inflation back above the BoJ’s 2% target in September, with the measure excluding food and energy rising faster than expected. Taken together, the data show an economy still growing and facing persistent cost pressures, but with signs of strain in hiring and demand.
Final October data are due on November 2 for manufacturing and November 5 for services and the composite index.
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