Japan's manufacturing output expanded sharply in July, according to the final au Jibun Bank survey compiled by S&P Global. The output sub-index recorded its fastest growth in more than twelve years. The headline manufacturing Purchasing Managers' Index, however, eased from 54.8 in June to 54.5 in July. It remained above the 50 threshold for a seventh consecutive month, indicating that the sector continued to expand even as the overall rate of improvement softened slightly.
Output and the headline index moved differently
The final reading was also marginally below the flash estimate of 54.7 published on July 24. The contrast between the modest decline in the headline PMI and the strongest output increase in more than twelve years was the most notable feature of the July survey. In PMI reports, a reading above 50 signals an improvement from the previous month, while a figure below 50 signals deterioration. July's 54.5 reading therefore kept manufacturing firmly in expansion territory despite the small loss of momentum from June.
New orders increased
New orders increased clearly during the month, the survey showed. Respondents highlighted demand for semiconductors and growth in manufacturing areas connected with artificial intelligence. New export orders also increased during July. Companies reported better demand from customers in Asia and the United States. Those responses indicate that the rise in factory production was supported by overseas business as well as broader gains across the survey's main components.
Purchasing activity and precautionary buying increased
Manufacturers expanded their purchasing activity at the fastest pace since April 2022. Some businesses bought inputs in advance because uncertainty in the Middle East could create supply-chain delays. S&P Global's assessment said this inventory building contributed to the strength of the sector's July performance. The detail matters because it shows that the acceleration reflected both stronger orders and preparations by companies seeking to protect production schedules against possible interruptions in the supply of materials.
Cost pressure remained but eased
Input-cost inflation slowed to its weakest rate since March, although manufacturers continued to report higher oil and raw-material prices. Companies raised their selling prices again, but the increase was slower than in June. The survey therefore points to an improvement in production and demand alongside persistent, but less rapidly rising, costs. It does not suggest that price pressure disappeared; instead, the pace at which manufacturers' costs increased became more moderate during the month.
Business confidence reached a four-month high
Manufacturers' expectations for future output improved to their strongest level in four months. Survey respondents anticipated further demand gains, particularly in semiconductors. PMI results are not the same as official industrial-production statistics: they summarize monthly changes reported by purchasing managers at participating companies. The July release should therefore be read as an early indicator of current operating conditions, while later official production data will provide a separate measure of actual industrial output.
What the July survey shows
The final PMI slipped to 54.5, but the output measure posted its fastest expansion in more than twelve years. New orders and export orders both increased during July. Semiconductor demand and AI-related manufacturing were prominent in company responses. Producers also increased input purchases as a precaution against supply risks. Cost inflation eased from its earlier pace, and expectations for future activity rose to a four-month high, leaving the manufacturing sector in expansion territory for a seventh month.
