Japan’s Factory and Service Sectors Struggle Amid Economic Uncertainty
Factory Activity Continues to Decline
Japan’s factory activity has faced its fifth consecutive month of contraction in October, raising concerns about the country’s economic outlook. The au Jibun Bank flash Japan manufacturing purchasing managers’ index (PMI) remained stagnant at 48.5, below the 50.0 threshold that separates expansion from contraction. Output experienced the sharpest decline in eight months due to a decrease in new orders. Additionally, employment levels contracted for the first time since February 2021, reflecting lower capacity in the sector.
Service Sector Growth Slows Down
Alongside the struggling manufacturing sector, Japan’s service sector also experienced a slowdown in growth. The au Jibun Bank flash services PMI dropped to 51.1 in October from 53.8 in September, marking the slowest rate of growth since the beginning of the year. Although new businesses expanded, the pace was slower, and foreign demand for services declined for the first time in 14 months.
Cost Pressures and Inflation
While cost pressures eased slightly, Japan’s core inflation fell below the 3% threshold for the first time in over a year. Input price inflation reached a three-month low, providing some relief. However, the overall economic indicators suggest a softening in the service sector, which has been a key driver of the Japanese economy in recent quarters.
Future Outlook and Market Sentiment
Market sentiment has also been affected by the decline in economic indicators. Jingyi Pan, economics associate director at S&P Global Market Intelligence, noted reduced optimism among firms regarding future output. The au Jibun Bank Flash Japan composite PMI, which combines both manufacturing and service sector activity, fell to 49.9 in October from 52.1 in September, indicating contractionary territory for the first time since December.
The challenges faced by Japan’s factory and service sectors highlight the uncertainties surrounding the country’s economic recovery. As Japan navigates these difficulties, it remains crucial to monitor the impact on various industries and the overall well-being of the economy.
