Automotive and chip demand slump weighs on PMI
Japan’s manufacturing sector contracted sharply in October, with the S&P Global Manufacturing PMI falling to 48.2, its lowest level since March 2024. This marks the fourth consecutive month below the 50.0 threshold, which separates growth from contraction. The latest figure also missed the preliminary estimate of 49.3 and September’s 48.5.
Weakness in automotive and semiconductor demand drove the downturn, according to the private-sector survey released Tuesday. New orders dropped at the fastest rate in 20 months, while export demand fell for a 44th consecutive month, though at a slower pace.
Cost pressures mount despite easing output decline
While production output declined, the drop was milder than in September, as firms adapted to lower order volumes. Rising input costs added pressure, with input inflation hitting a four-month high due to increases in labor, materials, and transport expenses.
To protect margins, manufacturers raised output prices at the fastest rate in three months. This comes amid signs of accelerating consumer inflation, as shown in Tokyo’s latest price data, which continues to test the Bank of Japan’s 0.5% interest rate stance.
Outlook improves on AI hopes and global recovery
Despite the weak current conditions, Japanese manufacturers turned more optimistic in October. The outlook was boosted by expectations for new product launches, increased AI adoption, and eventual recovery in key sectors as global trade normalizes.
S&P Global’s Pollyanna De Lima noted that many firms are hoping the impact of U.S. tariffs will ease and that future innovations will stimulate demand across automotive and chip-related industries.
