Manufacturing activity across Japan posted a sharp rebound during the month of October, rising at the fastest pace seen in six months, giving JPY investors some reason for cautious optimism. The final au Jibun Bank Japan Manufacturing PMI surged to a seasonally adjusted reading of 53.2 in October from the previous month’s final reading of 51.5, remaining above the 50-thresholding indicating growth for the ninth straight month.

The reading came in better than the flash estimate of 53, supported by an improvement in manufacturing output and total orders. In addition, production volumes returned to expansion after experiencing a contraction during September, also helping October’s PMI reading tick higher.

However, despite the higher reading, Japanese manufacturers have cautioned that raw material shortages due to disruptions in global supply chains could continue to mar the outlook for the sector in the coming months. Although new orders continued to grow, the pace of expansion remained limited while output also remained under pressure owing to these shortages.

However, firms in the manufacturing sector were plagued by rising input prices for the 17th straight month, with input cost inflation rising at the fastest pace seen in over 13 years. Some of these higher input costs were passed on to consumers, causing output prices also to increase.

Economist at IHS Markit, Usamah Bhatti, remarks, “Japanese manufacturers commented that the
degree of optimism regarding the outlook strengthened in October. Confidence about the outlook reached the highest level since the series began in July 2012, as hopes that the end of the pandemic would stimulate a broad market recovery gathered pace. This is broadly in line with the IHS Markit forecast for industrial production to grow 7.1% this year and 4.3% in 2022”.