Japan's manufacturing sector expanded at its fastest pace in more than 12 years in July, marking the seventh consecutive month of growth, according to the latest Purchasing Managers' Index (PMI). The S&P Global Japan Manufacturing PMI came in at 54.5, down slightly from 54.8 in June but still indicating a robust expansion.
The growth was driven by a sharp rise in new orders, which increased at the fastest pace since January 2022, fueled by strong demand for semiconductors and AI-related manufacturing areas. Export orders from overseas also expanded at the strongest rate in over five years, with firms reporting increased orders from Asia and the United States.
Consecutive month of expansion for Japan's manufacturing sector in July.
Annabel Fiddes, economics associate director at S&P Global Market Intelligence, noted that companies often commented that the improvement coincided with greater global demand across the key semiconductors industry, while some firms commented on growth in AI-related areas of manufacturing.
Contributed to the strength of the sector's performance
Input cost inflation eased to the slowest rate since March, although manufacturers continued to cite higher oil and raw materials prices linked to the Middle East war. Firms raised output prices sharply, but at a slower rate than in June.
Purchasing activity expanded at the sharpest pace since April 2022, as firms bought inputs in advance to guard against supply-chain disruption from uncertain situations in the Middle East.
Business sentiment among manufacturers improved to a four-month high, with expectations of continued demand improvements for semiconductors. The relatively weak yen supported the price competitiveness of Japanese products in foreign markets, according to the PMI.
The surge in factory output diverged significantly from the more moderate growth observed in the service sector, highlighting the uneven nature of Japan's economic recovery, according to the PMI.
