Japan Manufacturing PMI Falls to Six-Month Low as Services Sector Holds Steady

Japan’s manufacturing sector faced its sharpest downturn in six months in September, according to the latest S&P Global flash Purchasing Managers’ Index (PMI). The manufacturing PMI dropped to 48.4, down from 49.7 in August, remaining below the critical 50.0 mark that separates growth from contraction. This reading marked the lowest level since March, reflecting growing pressure on Japan’s export-driven economy.

The report highlighted that both manufacturing output and new orders slipped to multi-month lows, with orders falling at their fastest pace in five months. Some companies attributed the decline to cautious inventory management and challenging global market conditions, which weighed on production. Although export orders continued to contract, the decline was less severe compared to August’s 17-month low.

Adding to the uncertainty, Japan faces potential headwinds from U.S. tariffs and expectations of a Bank of Japan rate hike, raising concerns about the broader economic outlook. However, there were some positive signs as input cost pressures eased to levels last seen in early 2021. Despite this, output price inflation ticked higher, suggesting manufacturers are passing on some costs to consumers.

In contrast, the services sector continued to demonstrate resilience. The Services PMI stood at 53.0 in September, only marginally lower than August’s 53.1, signaling steady expansion for the sixth straight month. Robust domestic demand supported activity, with a slight rise in employment helping offset job losses in manufacturing, which shrank for the first time since November last year.

The Composite PMI, combining manufacturing and services, eased to 51.1 from August’s six-month high of 52.0, indicating the slowest pace of overall business growth since May. According to S&P Global Market Intelligence, the services industry remains the key driver of Japan’s economy, helping cushion the impact of weakening factory activity.