Japan’s manufacturing sector contracted at its sharpest pace in six months during September, according to a private survey released on Wednesday, signaling sustained challenges for the export-dependent economy.
The S&P Global flash Japan Manufacturing Purchasing Managers’ Index (PMI) fell to 48.4 in September, down from 49.7 in August, staying further under the crucial 50.0 mark that separates growth from contraction and hitting its lowest level since March.
The latest data indicated a six-month low in manufacturing output, with the index for new orders also sliding to its weakest in five months. Companies pointed to restrained inventory management amid tough market conditions as a driver behind fewer new orders and a subsequent drop in production. The softness in overseas demand moderated slightly, with the decline in export orders easing from August’s 17-month trough.
Japan’s broader economic prospects remain clouded by ongoing US tariffs and expectations of a central bank rate hike, both adding to the uncertainty.
On the inflation front, input costs for manufacturers moderated further, with input price inflation reaching its mildest pace since early 2021. However, inflation in output prices picked up compared to last month.
In contrast, the services sector maintained moderate momentum, with September’s Services PMI holding at 53.0, marginally lower than August’s 53.1, and continuing an expansionary streak into the sixth consecutive month.
Annabel Fiddes, economics associate director at S&P Global Market Intelligence, commented that survey data points to the service sector continuing as a vital driver of growth, posting another robust rise in activity that helped cushion the impact of an ongoing decline in manufacturing output.
Fiddes said that strong domestic demand has underpinned the services segment, even as export order volumes weakened. She added that hiring in the services sector saw a modest increase, which helped to balance out the reduction in manufacturing employment—an area that posted its first decline since November 2024.
The composite PMI, tracking both manufacturing and services activity, edged down to 51.1 in September from a six-month high of 52.0 in August, indicating the slowest overall business growth since May.
