Rising manufacturing output offsets cooling services growth, keeping inflation concerns alive for the Bank of Japan ahead of next week’s meeting.
Japan’s composite PMI climbed to 53.1 in July from 52.8 in June, marking a five-month high and extending a 16-month expansion streak. Manufacturing output surged to its strongest pace in over a decade, while services activity cooled slightly, with the services PMI dipping to 51.9 from 52.2.
The manufacturing PMI output index jumped to 56.1 from 54.3, the sharpest rise since February 2014, driven by a four-month high in new export orders. Job creation continued for the 34th consecutive month, though services hiring softened. Input cost inflation eased but remained elevated due to Middle East-related pressures.
Despite the upbeat data, regional equities fell, with the Nikkei down 2% and Kospi off 3%, as oil-driven risk aversion overshadowed domestic growth signals. The mixed inflation and growth outlook complicates the Bank of Japan’s policy decision next week.