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Japan’s manufacturing sector contracted sharply in October, marking its fastest decline in 19 months as global demand in the key automotive and semiconductor industries continued to weaken. According to the latest S&P Global Japan Manufacturing Purchasing Managers’ Index (PMI), the index dropped to 48.2 from 48.5 in September, missing the flash estimate of 49.3. This reading represents the lowest level since March 2024 and the fourth consecutive month of contraction, remaining below the critical 50-point threshold that separates expansion from contraction.
The report revealed that new orders plunged at the steepest rate in 20 months, reflecting tightened client budgets and waning demand across major export markets. Export orders fell for the 44th straight month, particularly from Asia, Europe, and the United States. However, the pace of decline in export demand eased slightly compared to March.
S&P Global’s Economics Associate Director, Pollyanna De Lima, noted that “demand weakness, particularly in the automotive and semiconductor sectors, weighed on the Japanese manufacturing industry.” Despite falling demand, production output saw a milder decline as manufacturers adapted to reduced workloads.
Input cost inflation surged to a four-month high, driven by rising expenses in labor, materials, and transportation. In response, firms raised output prices at the fastest pace in three months to safeguard profit margins.
Meanwhile, rising consumer inflation in Tokyo has increased pressure on the Bank of Japan, which maintained its interest rate at 0.5% during its recent policy meeting.
Looking ahead, manufacturers expressed renewed optimism, anticipating recovery in the auto and semiconductor sectors, supported by new product launches, AI adoption, and a gradual normalization of global trade. De Lima added that firms are hopeful “new product releases will succeed and the adverse effects of U.S. tariffs will diminish,” suggesting cautious optimism amid ongoing economic headwinds.
