Japan export demand lifts PMI to strongest since April
Hiring expanded at its quickest pace since 2018 as AI demand surged.
Japan's manufacturing sector extended its run of growth into an eighth straight month in August, with new orders climbing at their fastest pace in more than eight and a half years on the back of booming demand for semiconductors and artificial intelligence-related goods.
The headline S&P Global Japan Manufacturing Purchasing Managers' Index rose to 54.9 in August from 54.5 the month before, marking the sector's strongest improvement since April and its second-sharpest since January 2022. Any reading above 50 denotes expansion.
The uptick was driven chiefly by a marked acceleration in new business, which increased at its quickest rate since January 2018. Manufacturers pointed to firmer demand, a pick-up in client enquiries and brisk sales of chips and AI-related products. Export orders also rose at their fastest clip since the start of 2018, with firms citing stronger appetite from North America, South-East Asia and China.
Output rose accordingly, expanding at close to its fastest pace in more than a decade, second only to a reading from February 2014. Employment likewise grew at its briskest rate since February 2018 as manufacturers moved to expand capacity, even as backlogs of unfinished work continued to build.
Firms also stepped up purchasing activity to meet the additional workload, though supply chains remained strained. Delivery times lengthened at one of the fastest rates recorded in four years, a bottleneck manufacturers linked in part to disruption from the conflict in the Middle East, including pressure around the Strait of Hormuz, as well as to lingering product shortages.
Cost pressures, whilst still historically elevated, showed some signs of easing. Input price inflation slowed to its weakest since March, though a combination of higher raw material and oil prices and a soft yen kept overall costs elevated, prompting factories to continue raising their own selling prices.
Annabel Fiddes, economics associate director at S&P Global Market Intelligence, said the sharp rise in new work was the standout feature of the survey, underpinned by robust demand for chips and AI-related products. She noted that output readings for the third quarter so far pointed to the strongest quarterly production trend since early 2014, whilst business confidence over the coming year had also improved.
Fiddes cautioned, however, that price pressures remained a concern. Although cost inflation had retreated from recent peaks, the survey's price gauges were still close to record highs, with the war in the Middle East, supplier bottlenecks and a weak yen all continuing to weigh.
She added that there were tentative signs delivery delays had eased slightly over the past two months, and that the sector looked well placed to sustain its strong run provided supply chain and price pressures continued to abate.
