Japan factory activity decreases for the seventh consecutive month

The au Jibun Bank Japan Manufacturing PMI was slightly revised down to 48.7 in January 2025, from the preliminary reading of 48.8, and lower than the final 49.6 recorded in December, which had been the highest reading in three months.

Japan factory activity decreases for the seventh consecutive month

This marked the seventh consecutive month of contraction in factory activity, and the sharpest pace of decline since March of the previous year, as output dropped at its fastest rate in 10 months. New orders also continued to decline, registering the steepest drop in six months, with foreign sales falling by the least in 35 months, signaling weaker demand from overseas markets.

Purchasing activity also contracts

Purchasing activity also contracted at the most significant rate since March 2024, driven by reduced production requirements. Despite these challenges, employment in the manufacturing sector increased for the second consecutive month, a rare bright spot in an otherwise bleak manufacturing environment. This rise in employment was accompanied by a significant reduction in backlogs of work, suggesting that firms were able to clear out some of the accumulated orders. However, at the same time, delivery times from suppliers lengthened, indicating potential ongoing disruptions in the supply chain. On the price front, input cost inflation eased to a nine-month low, while output price inflation also slowed, reflecting some relief from rising costs.

Business sentiment deteriorates

However, despite these reductions in cost pressures, business sentiment deteriorated significantly, falling to its lowest level since December 2022. This decline in confidence suggests that manufacturers are cautious about the outlook for the coming months, with concerns over global demand and economic uncertainty continuing to weigh on the sector's performance. Overall, while there are some signs of easing in input costs and employment growth, the broader manufacturing environment remains fragile and continues to face substantial headwinds.