The data itself points to a private sector gathering pace, with manufacturing output growth the strongest in over a decade even as services momentum cooled slightly.
That contrasts sharply with the tone in regional equities on the day, where Japan’s Nikkei is down around 2% and South Korea’s Kospi off roughly 3%, moves that owe far more to the oil driven risk off tone from the Middle East than to the domestic data.
Sustained input cost pressure tied to the conflict, alongside a marked pickup in services charge inflation, keeps the inflation debate live for the Bank of Japan even as growth indicators firm, a combination that complicates the policy picture heading into next week’s meeting.
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Earlier:
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Japan’s private sector is expanding at its fastest pace in months.
Summary:
- Flash Japan Composite PMI Output Index rose to 53.1 in July from 52.8 in June, a five month high, marking 16 straight months of expansion
- Flash Manufacturing PMI Output Index jumped to 56.1 from 54.3, the steepest rise in manufacturing production since February 2014
- Flash Manufacturing PMI eased slightly to 54.7 from 54.8, while the Services PMI Business Activity Index slipped to 51.9 from 52.2
- New export orders for goods rose at the fastest pace in four months, while foreign demand for services fell again
- Job creation extended to 34 months, with faster manufacturing hiring offsetting softer services employment growth
- Input cost inflation eased to a three month low, though still elevated on Middle East related supply chain and energy pressures, while services charge inflation hit its fastest pace in over 12 years
- Business confidence softened from June, with manufacturers at their most upbeat since March on AI and semiconductor demand hopes, while services optimism weakened
- Japan’s Nikkei is trading around 2% lower and South Korea’s Kospi around 3% lower on the day, moves linked to the wider oil and geopolitical risk backdrop rather than the PMI data
Japan’s private sector expanded at its fastest pace in five months in July, according to flash PMI data from S&P Global, even as regional equity markets sold off sharply on oil driven risk aversion. The headline composite output index rose to 53.1 from 52.8 in June, extending a run of 16 consecutive months in growth territory and marking the strongest reading since February.
The improvement was driven almost entirely by manufacturing, where the output index jumped to 56.1 from 54.3, the sharpest increase in production since February 2014. The broader manufacturing PMI eased marginally to 54.7 from 54.8, while services activity growth slowed to 51.9 from 52.2. New export orders for goods grew at their fastest pace in four months, though overseas demand for services declined again, underlining a divergence between the two halves of the economy. Employment growth extended to a 34th consecutive month, with stronger manufacturing hiring offsetting a softer pace of job creation in services, while backlogs of work built at their strongest rate since February’s series record.
Cost pressures remained a defining theme. Input prices rose sharply again, though the pace eased to a three month low, with firms continuing to link higher costs to the Middle East conflict’s impact on supply chains and energy prices. Despite that easing, output charges accelerated, with services firms raising prices at their fastest rate in over 12 years as they sought to protect margins, even as factory gate inflation slowed to a three month low. Manufacturers also stepped up purchasing activity at the fastest pace in more than four years, building stocks of both purchases and, for the first time in two years, finished goods.
Business confidence softened from June, weighed down by continued uncertainty over the war’s effect on energy and raw material costs and supply chains. The drop was concentrated in services, while manufacturers grew more optimistic, reaching their most confident level since March on hopes that strong demand in the AI and semiconductor industries would continue supporting growth.
The resilience in Japan’s private sector data stood in contrast to the tone across regional equities on the morning. Japan’s Nikkei was trading around 2% lower and South Korea’s Kospi down roughly 3%, moves that reflect the broader risk off mood tied to surging oil prices and the widening Middle East conflict rather than any reaction to the PMI release itself, underscoring how geopolitical and energy market developments are currently overshadowing domestic economic signals across the region.
This article was written by Eamonn Sheridan at investinglive.com.