Japan's factories lose pace, services grow, and costs climb again

The PMI is a survey of purchasing managers. About 400 factories and 400 service firms say whether things got better or worse than a month ago. Above 50 means growth, below 50 means decline. The flash data were collected from 9 to 21 October.

The composite index was 52.3, same as September. Japan's private sector has grown for 19 months in a row, but the pace is the joint-lowest since May. Services sped up to 52.0. Factory output grew the least since March, with the index at 53.1 after 54.9.

Demand is cooling. New orders overall grew the least in three months, for factories the least since March. Export orders still grow, but at the softest rate in four months.

Prices. Company costs rose slightly faster than in September, mostly due to raw materials and wages. Firms raised their own prices, but at the slowest rate in four months. So they are absorbing part of the cost increase.

Jobs and mood. Hiring slowed to a 14-month low. In services, staff numbers fell for the first time since August 2025. Expectations for the year ahead are the weakest since July, and inflation is the main worry. S&P Global economist Usamah Bhatti notes the Bank of Japan has raised its rate to 1.25%, the highest since 1995, so how domestic demand holds up now matters.

Confirmed facts

• Japan's flash composite PMI was 52.3 in October 2026, same as in September.^[1][2]
• The services index rose to 52.0 from 51.3.^[1][2]
• The manufacturing PMI fell to 53.3 from 54.1, against a 54.5 forecast.^[1][2]
• Factory output grew the least since March, index 53.1 after 54.9.^[1]
• The private sector has grown for 19 months in a row.^[1][2]
• New orders grew the least in three months, export orders the least in four months.^[1]
• Input cost inflation edged higher, output price inflation eased to a four-month low.^[1]
• Job creation slowed to a 14-month low, services payrolls fell for the first time since August 2025.^[1]
• Business expectations for the year ahead were the weakest since July, mainly over inflation.^[1][2]
• The Bank of Japan's rate is 1.25%, the highest since 1995.^[1]

Implications

• ConfirmedJapan's economy keeps growing, but manufacturing is slowing.
• Our readingRising costs with softer demand may squeeze Japanese company profits.
• Our readingWeaker factories give the Bank of Japan a reason not to rush another hike.

Still unknown

• How far the final data in early November will differ from the flash.
• How the Bank of Japan will weigh this survey together with fresh 2.1% inflation.

Who it affects

Japan, Asia, Worldwide. Those who trade the yen and Japanese stocks or follow the world economy

Sources

1. S&P Global: S&P Global Flash Japan PMI: Business activity rises solidly again in October, but pace of job creation wanes October 23, 2026 · official
2. Investing.com: PMI: рост промпроизводства Японии замедлился, услуги ускорились October 23, 2026 · media