Japan factory output surges on semiconductor and AI‑related demand
Manufacturers stepped up both hiring and purchasing amidst rising output needs.
Japanese manufacturing output rose at its sharpest pace in almost twelve-and-a-half years in July, driven by the strongest surge in new orders in four-and-a-half years, according to the latest S&P Global survey.
The headline Japan Manufacturing Purchasing Managers' Index came in at 54.5 in July, only marginally down from 54.8 in June, marking a seventh straight month of strengthening business conditions.
New orders grew at their fastest pace since January 2022, with several firms linking the surge to demand for semiconductors and other AI-related products. New export business rose at its quickest rate in just over five years, with panellists reporting fresh orders from Asia and the US in particular.
To keep up with rising output requirements, manufacturers stepped up both hiring and purchasing. Input buying grew at its fastest pace since April 2022, whilst job creation held steady at June's rate. Some firms said they had bought materials ahead of need to guard against ongoing supply-chain disruption, with supplier delivery times lengthening markedly again in July. That contributed to a fourth consecutive monthly rise in stocks of purchases, the sharpest build-up since May 2024, even as finished goods inventories neared stabilisation.
Despite the increases in staffing, purchasing and input stocks, capacity pressures persisted, with backlogs of work rising for a seventh straight month at their fastest pace since February 2014.
The conflict in the Middle East continued to drive up costs, with firms reporting higher prices for oil and raw materials, though the rate of input cost inflation eased to its slowest since March. Output prices also rose sharply again in July.
Business sentiment improved to a four-month high, with manufacturers more confident about the year ahead amidst expectations of stronger demand, particularly for semiconductors.
Annabel Fiddes, economics associate director at S&P Global Market Intelligence, said the data pointed to sustained, strong growth momentum in Japan's manufacturing sector at the start of the second half of the year, with new orders rising at their strongest rate in four-and-a-half years driving the most pronounced expansion in output since early 2014.
She said firms often linked the improvement to stronger global demand for semiconductors and AI-related manufacturing, and pointed to evidence that stockpiling in response to the Middle East conflict had also supported the sector's performance, with input inventories rising at their fastest rate in over two years as purchasing activity climbed at its steepest pace since April 2022.
She added that the conflict continued to push up costs, and although overall cost pressures eased somewhat in July, they remained sharp and drove another substantial rise in selling prices.
