Japan's manufacturing sector stifled by waning demand in September

Japan's manufacturing sector activity contracted at a faster pace in September amid waning demand and the impact of US tariffs, S&P Global reported Wednesday.

The Japan manufacturing purchasing managers' index fell to 48.5 in September, down from 49.7 in August, but above the consensus forecast cited by FXStreet of 48.4.

A reading above the 50.0 neutral mark indicates an overall increase in business activity from the previous month, while a reading below signals a contraction.

"Japan's manufacturing sector ended the third quarter on a weaker note, with firms signalling steeper falls in both output and new orders," said Annabel Fiddes, economics associate director at S&P Global Market Intelligence. "Companies reported that softer demand across key markets such as China and US tariffs had weighed on performance."

Meanwhile, despite input price inflation hitting a three-month high with firms citing labour costs and raw materials, the pace of inflation was less profound than the average in the first half of 2025.

Hiring activity slowed in September, with new employment at the weakest level seen since February.

On a positive note, survey respondents indicated that they were largely confident that output would increase over the next year.

"However, the degree of positive sentiment slipped to a five-month low, with some firms concerned that reduced customer spending and US tariffs could dampen their performance," S&P Global said.

S&P Global compiles the PMI each month using survey responses from a panel of around 400 manufacturers.