The Au Jibun Bank Japan Manufacturing PMI was revised higher to 48.4 in March 2025 from 48.3 in the preliminary estimates, though it remained below the prior month’s 49, marking the ninth consecutive month of contraction in the manufacturing sector.
Japan manufacturing PMI revised slightly upward
The latest result still represents the steepest decline in factory activity since March 2024, reflecting continued challenges within the sector. Firms reported sharper declines in both production and new orders, driven by subdued demand across domestic and foreign sales. This ongoing contraction highlights the persistent weakness in manufacturing despite some signs of stabilization in other parts of the economy.
In response to the weaker demand, companies significantly reduced purchasing activity, opting to scale back inventories to avoid overstocking in a market with sluggish sales. This inventory adjustment strategy was aimed at conserving resources amid uncertainty over future demand, especially with global supply chain pressures and a fluctuating business climate.
Firms hirings increase
Despite the challenges posed by reduced demand, firms increased their staffing levels, marking the quickest rate of job creation in 2025 so far. This suggests that businesses were optimistic about future prospects, potentially anticipating a rebound in demand or seeking to prepare for future growth. However, the uptick in employment is also indicative of the tight labor market, where companies may be struggling to retain skilled workers amidst broader economic pressures.
On the cost side, input prices rose due to higher costs for labor, materials, energy, and transportation, as well as an unfavorable exchange rate that made imports more expensive. These rising costs contributed to inflationary pressures, although output price inflation eased to a five-month low, suggesting that manufacturers were less willing or able to pass on these higher costs to customers, likely due to competitive pressures and weakening demand.
Sentiment improves
Finally, sentiment improved slightly, marking the second-lowest level since April 2022. While the overall business outlook remains subdued, this slight improvement indicates that firms are beginning to feel somewhat more confident, possibly driven by expectations of stabilization in global trade or domestic recovery initiatives. However, given the ongoing challenges, the sector’s outlook remains cautious, and much will depend on how external demand and cost pressures evolve in the coming months.
