Japan’s manufacturing sector deteriorated for a second successive month, albeit only marginally, while the service sector expanded, signaling upbeat conditions in some industries. Japan’s manufacturing sector saw a decline in new incoming orders while output rose modestly as higher workforce capacity supported the clearance of backlogged orders.
Manufacturers face rising input costs
The headline au Jibun Bank Flash Japan manufacturing purchasing managers’ index (PMI) rose to 49.5 in August from 49.1 in July.
“August flash PMI data signaled that the solid expansion of business activity at Japanese private sector firms was sustained midway through the third quarter of 2024,” stated Jingyi Pan, economics associate director at S&P Global Market Intelligence.
Overall sentiment across the sector also improved slightly. However, manufacturers were broadly hesitant to raise selling prices, which resulted in output price inflation declining in August despite average input costs rising at the fastest pace since April 2023.
“Overall optimism levels remained above average to indicate that firms were confident that output will continue to rise in the months ahead. The level of business confidence eased to a 19-month low, however,” added Pan.
Read: Eurozone inflation climbs to 2.6 percent in July, dampening ECB rate cut hope
Japan’s service sector expands
In contrast, the country’s service sector expanded at a solid pace for the second month in a row. Supporting the latest uptick in activity was rising new business inflows, including export business which returned to growth in August.
The au Jibun Bank Flash Japan Services Business Activity Index posted 54.0 in August, up from a final reading of 53.7 in July.
Rising new business inflows pushed service providers to hire additional staff to cope with ongoing workloads and clear outstanding work. The level of optimism was above average but eased in August amid concerns over labor constraints and the impact of rising costs.
Unline manufacturers, service providers opted to raise selling prices at the softest pace in nine months, even as input cost inflation rose. “Indeed, overall selling price inflation fell to its lowest since November 2023 despite average input costs rising at the fastest pace in 16 months,” commented Pan.
He added that signs of margin pressures were present not only among manufacturers but also in the service sector. New orders growth remained solid, thereby highlighting that private-sector firms are partially absorbing price increases to remain competitive and support sales.
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