Japan's manufacturing sector returns to growth in January

Japan's private sector expanded at an accelerated rate in January, reaching a 17-month high, preliminary figures from S&P Global showed Friday.

The S&P Global flash Japan composite purchasing managers index rose to 52.8 points in January from 51.1 in December.

A reading above the 50.0 neutral mark indicates an overall increase in business activity from the previous month, while a reading below signals a contraction.

The flash services PMI increased to 53.4 points in January from 51.6 in December.

The flash manufacturing PMI rose to 51.5 points in January from 50.0 in the previous month, while the flash manufacturing PMI output index grew to 51.2 points from 49.9.

Annabel Fiddes, economics associate director at S&P Global Market Intelligence, said: "The latest PMI data signalled a solid start to 2026 for Japanese private sector firms, with output rising at the quickest pace for nearly a year-and-a-half.

"However, an important development this month was the return to growth of the manufacturing industry. The survey showed that goods producers posted the first increase in output since last June amid the first upturn in sales for over three-and-a-half years. Furthermore, new export orders for manufactured goods increased for the first time since early-2022."

Companies reported greater pressure on capacity in January amid rising demand from customers.

Consequently firms across both the manufacturing and services sectors increased hiring during the month, with the rate of job creation at the most pronounced level seen since April 2019.

"Although growth momentum improved in January, the overall level of optimism towards the 12-month outlook for output slipped to the lowest seen since last October, though was broadly in line with the survey's long-run average," S&P Global commented.

Going forward, company expansion plans, demand, and new product launches are expected to support growth.

However, survey respondents did highlight concerns around economic uncertainty, rising costs, staff availability, and Japan's ageing population.

S&P Global compiles the PMI figures each month using survey responses from a panel of approximately 400 manufacturers and 400 services sector companies, and the flash readings are early indications calculated from 80% to 90% of responses.

The composite figure is a weighted average of the services PMI and manufacturing output index.