Japan's factory activity returns to growth after seven months, PMI shows

Core Insights - Japan's manufacturing activity expanded in January for the first time in seven months, driven by a significant rise in new export orders, marking a return to expansionary territory with a PMI of 51.5 [1][2] Manufacturing Sector - The S&P Global flash Japan Manufacturing PMI increased from 50.0 in December to 51.5 in January, indicating growth [1] - Key sub-indexes showed that factory output and new orders ended their contraction streaks, with new export orders climbing at the fastest rate since November 2021 [2] - Input price inflation for manufacturers reached a nine-month high, while they raised prices charged to customers at a faster rate in January [5] Services Sector - The flash Japan services PMI improved from 51.6 in December to 53.4 in January, indicating the steepest increase in services activity since last July [3] - The flash composite PMI rose to 52.8 from 51.1 in December, reflecting overall growth in both manufacturing and services [3] Employment and Capacity - Growing customer demand led to increased pressure on capacity, with outstanding business rising at the fastest rate since late 2007 [4] - Employment across Japan increased at the steepest rate since April 2019, driven by the need for more staff [4] Future Outlook - Both manufacturers and service firms forecast growth in future output, although optimism has slightly decreased due to concerns about rising costs, global economic uncertainty, labor shortages, and an aging population [4] - The Bank of Japan is expected to raise its growth forecast and signal readiness for the next rate hike, influenced by recent yen falls and a solid wage outlook [5]