Japan's factory output surges to near 12-year high in July, PMI shows

Japan's manufacturing sector experienced a significant boom in July, with output expanding at the quickest rate seen in more than 12 years. The S&P Global Japan Manufacturing Purchasing Managers' Index (PMI) recorded 54.5, a slight decrease from June's 54.8 but marking the seventh consecutive month of expansion, indicating a robust recovery.

A key driver of this growth was a surge in new orders, which climbed at the fastest pace since January 2022. Respondents specifically cited strong demand from the semiconductor industry and AI-related manufacturing areas. New orders from overseas also saw their strongest growth in over five years, with notable increases from Asia and the United States, according to the survey.

Annabel Fiddes, economics associate director at S&P Global Market Intelligence, commented on the findings. "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," she noted. This highlights the global impact of technological advancements on Japan's industrial output.

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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.

Despite persistent cost pressures from higher oil and raw material prices, linked to the conflict in the Middle East, input cost inflation slowed to its lowest rate since March. Manufacturers responded by sharply increasing output prices, though at a slower rate than in the previous month. Purchasing activity expanded at its sharpest pace since April 2022, as firms proactively acquired inputs to mitigate potential supply-chain disruptions.

Looking ahead, business sentiment improved to a four-month high in July. Manufacturers expressed optimism, anticipating continued demand improvements, particularly for semiconductors. This positive outlook suggests sustained growth and confidence within Japan's manufacturing sector.

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The stock building efforts partly "contributed to the strength of the sector's performance."