Japan’s Factory Activity in August

TOKYO (Reuters) – Japan’s factory activity shrank in August amid subdued demand, though the pace of decline slowed. Conversely, the service sector expanded, reflecting positive conditions in some industries, according to a business survey released Thursday.

Rising price pressures and labor constraints continue to challenge Japanese firms, particularly in the service sector, the survey indicated.

The au Jibun Bank flash Japan manufacturing purchasing managers’ index (PMI) rose to 49.5 in August from 49.1 in July, remaining below the 50.0 threshold that separates growth from contraction for a second consecutive month.

Jingyi Pan, Economics Associate Director at S&P Global Market Intelligence, remarked, “Demand trends diverged as a solid rise in services new business contrasted with subdued demand conditions in the goods-producing sector, which will be worth monitoring.”

Although the subindex for new orders contracted at a slower pace in August, the output subindex expanded, aided by higher workforce capacity that helped clear backlog orders in manufacturing.

Output price inflation eased in August as manufacturers hesitated to increase selling prices, even as average input costs surged at the fastest rate since April 2023, indicating persistent pressure.

The au Jibun Bank flash services PMI rose to 54.0 in August from 53.7 in July, bolstered by solid new business inflows, including from exports.

The au Jibun Bank flash Japan composite PMI, which combines both manufacturing and service sector activity, increased to 53.0 in August, the highest level since May 2023, up from 52.5 in July.

This survey follows last week’s Reuters Tankan report that showed Japanese manufacturers felt less confident about business conditions in August, while service sector sentiment slipped due to lackluster demand from China.

Japanese economy expanded in Q2, bouncing back from an early-year slump, aided by increases in consumption and capital spending.