Japan’s Manufacturing Sector Decline

TOKYO (Reuters) – Japan’s factory activity fell at the fastest pace in 10 months due to sluggish demand, according to a private-sector survey released on Monday. Business confidence dipped to a more than two-year low, indicating significant pressure on the manufacturing sector.

The final au Jibun Bank Japan manufacturing purchasing managers’ index (PMI) dropped to 48.7 in January, down from 48.8 in the flash reading and 49.6 in December. The PMI has been below the 50.0 threshold—marking growth versus contraction—for seven consecutive months, signaling ongoing weakness in the sector.

Usamah Bhatti of S&P Global Market Intelligence, which conducted the survey, commented, “Muted trends were sustained across the manufacturing industry at the start of 2025.”

The key subindex for output has remained in contraction for the fifth consecutive month, largely due to cuts in production, particularly in the investment and intermediate goods sectors. New orders have seen declines for 20 months straight, with notable weakness in the automotive and semiconductor sectors.

While firms generally maintain a positive outlook for the year ahead, optimism has dipped to its lowest since December 2022, coinciding with a decrease in outstanding business levels in January. Bhatti noted, “Firms were optimistic about an eventual demand recovery, but concerns were raised regarding the timing of any such improvement.”

New overseas orders also declined, though at a slower pace in January compared to the previous month. Sales to the United States and mainland China were weak, while demand from Taiwan remained robust.

Inflation pressures persist, with Japanese manufacturers facing high input and output prices. Nevertheless, the hiring of experienced staff and filling of vacancies signifies expansion in employment.