Japan’s PMI Slows but Markets Rally on Fed Rate Hopes

Japan’s private sector continued to expand in September 2026, marking the 18th straight month of growth, but momentum slowed to its weakest pace since May. The S&P Global Composite PMI Business Activity Index declined to 52.3 from August's 53.5, falling short of the flash estimate of 52.5. This dip reflected a broader slowdown in both manufacturing and services.

The S&P Global Services PMI Business Activity Index also dropped to 51.3 in September, down from 52.5 in August and below the flash reading of 51.6. This result was weaker than the 2026 year-to-date average. The deceleration was attributed to softer new orders, operational disruptions from the Kumamoto earthquake, and a sharp decline in export orders, which collectively weighed on overall output.

Despite the softer PMI figures, Japan’s equity markets opened the week with strong gains. The Nikkei 225 Index surged more than 2%, nearing 70,000, reaching a three-month high. This rally was fueled by weaker-than-expected US jobs data, which reduced expectations of further interest rate hikes by the Federal Reserve. Meanwhile, the Japanese yen remained stable around 157.8 per dollar.