Japan's manufacturing sector continued to expand, albeit at a softer pace in July, with strong demand for semiconductors and artificial intelligence-related products driving the fastest growth in new orders, according to final data from S&P Global released on Monday.
The final S&P Global Japan Manufacturing Purchasing Managers' Index (PMI) came in at 54.5 in July, missing the flash estimate of 54.7 and compared with the 54.8 recorded in the previous month.
The reading remained well above the 50-point threshold that separates expansion from contraction, marking the seventh consecutive month of improving business conditions.
Manufacturing output rose at its fastest pace since February 2014 as companies responded to stronger demand.
Total new orders increased at the quickest rate since January 2022, while export orders posted their strongest growth in just over five years, driven by demand from Asia and the United States.
"Companies often commented that the improvement coincided with greater global demand across the key semiconductors industry, while some firms commented on growth in AI-related areas of manufacturing," Annabel Fiddes, economics associate director at S&P Global Market Intelligence, said.
Manufacturers also increased hiring and purchasing activity, although backlogs of work grew at the fastest pace since February 2014, pointing to mounting capacity pressures.
Firms continued to report supply-chain disruptions linked to the conflict in the Middle East, prompting stock-building and longer supplier lead times.
Input cost inflation remained sharp, reflecting higher oil and raw material prices, although the pace eased to its slowest since March. Selling prices also rose substantially during the month.
Business confidence improved to a four-month high, with manufacturers expecting stronger demand over the coming year, particularly from the semiconductor industry.
