July PMI data shows manufacturing growth at its strongest since 2014, driven by semiconductor and AI-related orders from Asia and the US.
Japan’s manufacturing output expanded at its fastest pace in 12.5 years in July, with the S&P Global Japan Manufacturing PMI rising to 54.5. The surge was fueled by robust demand for semiconductors and AI-related products, particularly from the US and Asia, outpacing most global peers.
New orders grew at the quickest rate since January 2022, but capacity constraints intensified, with backlogs rising at a decade-high pace. Input cost inflation remained elevated due to Middle East conflicts disrupting oil and raw material supplies, keeping upward pressure on output prices.
The data reinforces expectations for a Bank of Japan rate hike, as sustained inflation and strong manufacturing activity support a currency-stabilizing policy shift. Recent joint yen interventions by Japan and its allies further underscore the focus on monetary tightening.