Japanese factory output rose in July at the fastest rate since February 2014, and one of the things lifting the number is firms buying ahead of the war
February 2014.
That is how far back you have to go to find Japanese factory production rising faster than it did in July. The S&P Global Japan Manufacturing PMI, published at 09:30 Tokyo time on Monday, put the headline index at 54.5, slightly below June's 54.8 and the seventh consecutive month in which the survey has recorded an improving sector. Underneath that steady headline, the output component recorded its sharpest rise in nearly twelve and a half years.
New orders did the pulling. Growth in order intakes was the fastest since January 2022, and the release says a number of respondents put it down to demand for semiconductors and other products tied to the development of artificial intelligence. Orders from abroad rose at the fastest rate in just over five years, with panellists reporting new business from Asia and the United States in particular.
Firms responded by hiring and by buying. Staffing rose solidly, at a pace unchanged from June. Purchasing rose too, and the expansion in input buying was the steepest since April 2022.
Why some of that buying happened
The release is explicit that not all of the strength is demand.
Annabel Fiddes, economics associate director at S&P Global Market Intelligence, is quoted saying there was evidence that "stock building in response to the conflict in the Middle East had contributed to the strength of the sector's performance", with input inventories rising at "the quickest rate in over two years". Some firms told the survey they had purchased items in advance to guard against continuing supply chain disruption.
That is a different engine from an order book. It runs until the stockroom is full.
Costs, and where they went
Input costs rose at what the release calls a marked pace, softer than in June but sharp in absolute terms, and the document attributes the pressure to the effects of the war in the Middle East. Supply chain delays were evident again in July and were less pronounced than the month before. Firms passed the costs on, and the release records another substantial rise in selling prices.
Backlogs of work continued to build.
The survey collected its responses between 9 and 24 July. A reading above 50 signals improvement against the previous month, not a level, so 54.5 says that far more Japanese manufacturers reported better conditions in July than reported worse ones. It does not measure how much was produced.
