Japan Composite PMI Rises to 53.1 Amid Ongoing Cost Pressures

Japan's private sector expanded at its fastest pace in five months in July, as indicated by the flash PMI data from S&P Global. The Composite PMI Output Index increased to 53.1 from 52.8 in June, marking the strongest reading since February and extending a streak of 16 consecutive months of growth. The improvement was primarily driven by manufacturing, where the output index jumped to 56.1 from 54.3, the steepest rise in production since February 2014.

In contrast, the Services PMI Business Activity Index slipped to 51.9 from 52.2, indicating a cooling in services momentum. New export orders for goods rose at the fastest pace in four months, although foreign demand for services continued to decline, highlighting a divergence within the economy.

Employment growth persisted for the 34th consecutive month, with stronger hiring in manufacturing offsetting softer growth in services. Input cost inflation eased to a three-month low, but remained elevated due to ongoing supply chain and energy pressures linked to the Middle East conflict. Services firms raised prices at their fastest rate in over 12 years, while factory gate inflation slowed.

Despite the positive growth indicators, Japan's Nikkei index fell approximately 2% and South Korea's Kospi dropped around 3%, reflecting a broader risk-off sentiment driven by rising oil prices and geopolitical tensions rather than the PMI data itself. Business confidence softened from June, particularly in the services sector, while manufacturers showed increased optimism, bolstered by expectations of sustained demand in the AI and semiconductor industries.