Japan's economic growth experienced a deceleration in September, reaching its slowest pace in four months. Despite this moderation in overall activity, businesses continued to face significant price pressures and maintained robust hiring levels, indicating that inflationary concerns remain prominent for policymakers.
The preliminary Composite Output Index, which combines manufacturing and services data, registered 52.5, down from 53.5 in August. While this marks the eighteenth consecutive month of expansion, it represents a notable slowdown. The manufacturing sector's Purchasing Managers' Index (PMI) also saw a decline to 54.1 from 54.9, with output growth hitting a three-month low. Similarly, the services index decreased to 51.6 from 52.5.
A key factor contributing to the slower growth was a reduction in new order expansion, primarily driven by softer domestic demand. However, export order growth demonstrated resilience, holding steady at August's levels, particularly benefiting manufacturers and companies linked to the artificial intelligence sector.
Inflationary Pressures Endure
Despite the overall slowdown in economic activity, the survey highlighted persistent inflationary dynamics. Firms continued to raise selling prices at a near-record pace, reflecting intense cost pressures. This environment, coupled with the strongest hiring activity since February, reinforces the argument for sustained inflation within the Japanese economy.
- The explicit link drawn in the survey between rising costs and the depreciation of the Japanese Yen could heighten policymakers' sensitivity to further currency weakness.
- For retail forex and CFD traders, these dynamics are crucial as they influence the Bank of Japan's monetary policy decisions, which in turn affect the Yen's valuation against major currencies.
- Continued inflation and a potentially weak Yen could lead to tighter monetary policy, impacting carry trades and overall market sentiment for JPY pairs.
The data offers little immediate relief for Japanese government bonds, which are already under pressure from rising global yields, as selling prices remain elevated. Equity investors, however, may find positive signals in the strength of export and AI-related demand, which supports specific sectors, potentially offsetting concerns about the softer domestic picture.
📰 Based on reporting from: ForexLive →