Japan composite PMI holds at 52.3 as services offset softer factories

The BoJ is left with a mixed but generally manageable situation by the survey: ongoing expansion and persistent cost pressures create room for further policy moves, whereas subdued hiring and weaker demand point to a slower approach. For the yen, the figures alone are probably not enough to alter expectations much, particularly with this morning’s core-core CPI print beating forecasts. On JGBs, activity that remains solid plus input costs that are still sticky fits with the market keeping a December rate increase on the table. For stocks, exporters face a mild drag from the cooling in factory orders and export business. Raw materials are still a major source of pressure, and elevated oil prices tied to the Middle East conflict should keep input-cost inflation firm into the end of the year.

---

Earlier:

• Japan’s core inflation has exceeded the BoJ’s 2% target for the first time since December, supporting the yen

---

Japan’s private sector continued to grow in October, although softer factory momentum, reduced hiring and higher costs imply the expansion is increasingly fragile while the BoJ considers its next step.

Summary:

• The S&P Global flash Japan composite PMI output index came in at 52.3 for October, unchanged from the prior month, extending the expansion into a 19th straight month while matching the weakest reading since May.
• Services business activity improved to 52.0 from 51.3, whereas the manufacturing PMI slipped to 53.3 from 54.1 and factory output fell to 53.1 from 54.9, the lowest in seven months.
• Growth in new business eased to a three-month low, driven by the softest factory order increase since March. Export orders posted their weakest gain in four months.
• Employment growth slowed to a 14-month trough, as service providers cut jobs for the first time since August 2025 even though unfinished work increased at the fastest pace since June.
• Raw-material and labour expenses nudged input-cost inflation up, while selling price inflation stayed elevated but cooled to a four-month low.
• Confidence among companies dropped to a three-month low, and inflation was cited as a key worry.

Flash survey figures from S&P Global show Japan’s private sector still growing in October, though overall expansion stayed muted because weaker manufacturing was balanced by firmer services activity. The Bank of Japan faces an increasingly complicated picture ahead of its policy meeting next week, with a marked slowdown in hiring and rising cost pressures.

The composite output gauge from S&P Global’s flash survey held at 52.3, keeping the growth streak at 19 months while equalling the slowest pace observed since May. Manufacturing momentum cooled against firmer services, whose activity measure advanced from 51.3 to 52.0. The manufacturing PMI slipped from 54.1 to 53.3, and the output sub-index went from 54.9 to 53.1, the lowest point in seven months.

Demand conditions were less robust. The latest rise in new work was the slowest in three months, while manufacturers reported the most subdued order growth since March. Service-sector sales picked up only modestly. Export business remained in expansion, but new export orders advanced at their weakest pace in four months.

Employment stood out as a soft area. Work outstanding increased at the quickest pace since June, but companies remained hesitant to take on workers, leaving employment growth at a 14-month low. Goods producers raised headcounts only modestly, while service-sector firms trimmed staff, a first since August 2025. At the same time, manufacturers bought more inputs, pushing up stock levels at the strongest rate in nearly four years and extending supplier delivery times considerably.

The cost picture stayed at the centre of the survey. Overall input price inflation ticked up and remained pronounced, as businesses cited increased expenses for materials and labour. Selling prices were still raised aggressively, but the rate of output price increase eased to its slowest in four months. Expectations for output a year ahead stayed positive, although sentiment slipped to a three-month low with inflation a central worry.

Usamah Bhatti, economist at S&P Global Market Intelligence, said the latest pace of growth remains below the average recorded for the year to date. He saw signs that momentum is rotating from manufacturing towards services as the year closes. Inflation is a key downside risk for the private sector, Bhatti said, and it will be important to watch domestic demand now that the BoJ has raised its policy rate to 1.25%, the highest since 1995.

The flash survey came out just after national inflation data for September showed core inflation again exceeding the BoJ’s 2% target, with the measure stripped of food and energy rising more than anticipated. Combined, the figures point to an economy that is still expanding but coping with sustained cost pressures, while hiring and demand show signs of stress.

Final readings for October are scheduled to be published on November 2 for manufacturing and on November 5 for services and the composite index.