Japan's private sector activity slows to five-month low in October

Japan's private sector growth slowed in October as business activity increased at the weakest pace in five months amid a renewed drop in new orders, data from S&P Global showed Friday.

The flash Japan composite purchasing managers index fell to 50.9 in October, the softest rate since May, from 51.3 in September.

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

Specifically, the flash services PMI dropped to 52.4 in October from last month's 53.3.

The flash manufacturing PMI continued to contract in October to 48.3 from 48.5 in September, while the flash manufacturing PMI output index increased to 48.1 from 47.4.

Annabel Fiddes, economics associate director at S&P Global Market Intelligence, said: "While the service sector remained a key growth engine for the wider economy, fading momentum here will be a point of concern and something to keenly monitor in the coming months. The manufacturing sector meanwhile remained stuck in decline, with the latest survey pointing to the quickest reduction in factory orders for 20 months amid reports of weaker customer demand and relatively sluggish business conditions."

Japanese firms continued to hire but job gains were modest across services and manufacturing.

Cost burdens intensified across Japan’s private sector in October, reflecting a broad-based uptick in operating expenses.

"Prices data meanwhile continued to point to strong inflationary pressures across Japan. Both input costs and output charges increased at historically strong rates, with firms often linking this to higher employment, raw material and fuel costs, alongside a weak yen," explained Fiddes.

S&P Global reported Japan firms remained generally confident, but business sentiment softened in October as service providers turned cautious while manufacturers grew more optimistic.

S&P Global compiles the monthly PMI figures from survey responses gathered from a panel of approximately 400 manufacturers and 400 services companies. Flash readings are preliminary estimates, typically based on 80% to 90% of total responses.

The composite index is calculated as a weighted average of the manufacturing output index and the services PMI.