Japan manufacturing output grows at fastest pace in 12.5 years in July
The strength of Japan's manufacturing data, with output growth at its fastest since February 2014 and new orders rising at the quickest pace since January 2022, points to a sector running well ahead of most global peers, driven substantially by semiconductor and AI-related demand from Asia and the US. That momentum, however, comes with a cost: capacity pressures are intensifying, with backlogs of work rising at their fastest pace in over a decade and input cost inflation, while easing slightly, remaining sharply elevated due to the Middle East conflict's impact on oil and raw material prices. For yen watchers, robust manufacturing strength adds another factor supporting the case for the Bank of Japan to proceed with the rate hike it has signalled, reinforcing the narrative of a currency-supportive policy shift running in parallel with recent joint intervention. Sustained cost pressures and rising output prices also keep upward pressure on Japanese inflation, a dynamic that continues to feed into the broader currency and monetary policy story.
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Earlier:
- Japan's Mimura says joint yen action culmination of currency alliance
- JP Morgan says US Treasury has limited firepower for yen intervention
- Bessent, Japan confirm Friday's joint yen intervention, vow further action
Japanese manufacturing is booming on AI and chip demand, but the war-driven cost squeeze and capacity strain haven't gone away.
Summary:
- The S&P Global Japan Manufacturing PMI posted 54.5 in July, only slightly down from June's 54.8, marking a seventh straight month of improving business conditions
- Manufacturing output grew at its fastest pace since February 2014, driven by the steepest rise in new orders in four-and-a-half years
- Growth was fuelled largely by demand for semiconductors and AI-related products, with new export orders growing at their fastest pace in over five years, led by Asia and the US
- Employment and purchasing activity both rose solidly, with input buying expanding at its sharpest pace since April 2022
- Backlogs of work increased for a seventh consecutive month, at the fastest pace since February 2014, as capacity pressures intensified despite the hiring gains
- Input costs, driven by the war in the Middle East pushing up oil and raw material prices, remained sharply elevated even as the pace of inflation eased to its slowest since March
Japanese manufacturing output grew at its fastest pace in nearly twelve-and-a-half years in July, according to the latest S&P Global survey, as a surge in orders tied to semiconductor and artificial intelligence-related demand propelled the sector's strongest run of business conditions in seven months.
The headline S&P Global Japan Manufacturing Purchasing Managers' Index, a composite measure of manufacturing performance where readings above 50 signal improving conditions, posted 54.5 in July, only slightly below June's 54.8. It marked the seventh consecutive month of strengthening business conditions in the sector. The improvement was driven chiefly by the sharpest rise in manufacturing production since February 2014, as firms responded to a jump in new orders that itself represented the fastest rate of growth since January 2022. A number of survey respondents pointed to rising demand for semiconductors and other AI-development-related products as the key driver of the expansion, with new export orders growing at their fastest pace in just over five years, led by demand from Asia and the United States.
With output requirements climbing, companies raised both staffing levels and purchasing activity solidly during the month. Input buying expanded at its sharpest pace since April 2022, as firms in some cases bought materials in advance to guard against ongoing supply-chain disruption tied to the Middle East conflict. Suppliers' delivery times lengthened markedly again, contributing to a fourth consecutive monthly rise in stocks of purchases, the fastest rate of inventory accumulation since May 2024. Despite the gains in employment and input stocks, manufacturers continued to face mounting capacity pressures, with backlogs of work increasing for a seventh straight month at the fastest pace since February 2014, suggesting firms are still struggling to keep pace with the surge in new business.
The war in the Middle East continued to weigh on costs, pushing input prices sharply higher again in July as firms reported steeper charges for oil and raw materials, even though the overall rate of cost inflation eased to its slowest since March. Output prices rose sharply again as a result. Annabel Fiddes, Economics Associate Director at S&P Global Market Intelligence, said the data highlighted sustained and strong growth momentum in Japanese manufacturing at the start of the second half of the year, noting that companies frequently cited stronger global demand in semiconductors alongside growth in AI-related manufacturing areas. She added that evidence of stock building in response to the Middle East conflict had also contributed to the sector's strength, even as the war continued to place upward pressure on costs and selling prices.
Manufacturers themselves grew more confident in the outlook, with business sentiment rising to a four-month high in July, underpinned by expectations of further demand improvements, particularly in semiconductors, over the coming year.
This article was written by Eamonn Sheridan at investinglive.com.提供 MainLink：Investinglive RSS Breaking News Feed
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