Japan's manufacturing sector expanded at its slowest pace in seven months in October as output and new orders lost momentum while cost pressures picked up, a business survey showed on Monday.

The S&P Global Japan Manufacturing Purchasing Managers' Index (PMI) eased to 53.3 in October from 54.1 in September, a survey by S&P Global showed. The 50-mark separates growth from contraction.

Output rose for a 10th straight month, supported by greater order volumes and stronger demand for semiconductors, although the pace was the softest since March.

New orders also increased for a 10th consecutive month, as firms cited more favourable market conditions and AI-related demand strength, but the pace of increase was the softest in seven months.

"The Japanese manufacturing sector has been unable to sustain the rates of growth in output and new orders we saw earlier in the year, but we are still looking at a decent pace of expansion by historical standards at the start of the fourth quarter," said Phil Smith, Economics Associate Director at S&P Global Market Intelligence.

Overseas demand remained supportive, but export order growth was the weakest since March. Survey respondents cited stronger demand from Asian markets, including China, North America, Africa and the Middle East.

Employment growth held steady and stayed close to the fastest seen in the past eight-and-a-half years. The backlog of work accelerated, with some firms also reporting input delivery delays.

Input price inflation accelerated in October, while output charge inflation eased to a six-month low. Stocks of purchases increased at the fastest rate in almost four years as firms sought to guard against further price rises.

Manufacturers' optimism about the year ahead edged up to an eight-month high, with firms citing new product launches, the AI boom and new client introductions as reasons for confidence.