Tokyo Factory Activity Update

TOKYO (Reuters) – Japan’s factory activity shrank at the fastest pace in three months in October due to weak domestic and overseas demand impacting sales and output, as indicated by a private-sector survey released on Friday.

The final au Jibun Bank Japan manufacturing purchasing managers' index (PMI) fell to 49.2 in October from 49.7 in September, slightly up from 49.0 in the flash reading. However, this reading remained below the 50.0 threshold, indicating contraction for the fourth consecutive month.

Usamah Bhatti at S&P Global Market Intelligence noted, "Firms often mentioned weakness in domestic and global demand had weighed on sales and output, notably in semiconductors and autos."

The output subindex extended its contraction, hitting the lowest level since April due to weak new orders and excess inventories. New orders also declined, remaining below the 50.0 mark for the 17th month, with the automotive and semiconductor sectors showing lackluster demand.

Weak demand from the United States and China resulted in a significant drop in new export orders, the largest reduction since March.

Input prices continued to rise, but the pace of increase slowed to the softest since April. Manufacturers attributed this inflation to higher costs of raw materials, labor, logistics, utilities, and a weak yen. Consequently, they increased selling prices, which rose to the highest level in three months.

Despite challenges, manufacturers’ outlook remained fairly firm, although optimism remained unchanged from September’s 21-month low. Bhatti commented on concerns regarding the timing of recovery from the current economic malaise.

On Thursday, the Bank of Japan maintained ultra-low interest rates and emphasized the need to examine the global economy. The central bank projected that inflation would hover around its 2% target in the coming years, reaffirming its commitment to raising borrowing costs if the economy shows signs of moderate recovery.