Japan Factory Declines Slow in May but Tariff Worries Persist, PMI Shows

Reuters

12:51 JST, June 2, 2025

TOKYO, June 2 (Reuters) – Japan’s factory activity shrank at the slowest pace in five months in May as the decline in new orders eased, but worries over U.S. tariffs have dampened the recovery from an almost year-long contraction, a private-sector survey showed on Monday.

The final au Jibun Bank Japan Manufacturing Purchasing Managers’ Index (PMI) rose to 49.4 in May from 48.7 in April, marking the 11th consecutive month of staying below the 50.0-line that indicates contraction.

Still, the reading was higher than the flash figure of 49.0 and the highest so far this year.

“Manufacturing conditions in Japan moved closer to stabilization in May, according to latest PMI data, with companies signaling a softer decline in sales and improved jobs growth,” said Annabel Fiddes, Economics Associate Director at S&P Global Market Intelligence, which compiled the survey.

Among sub-indexes, new orders fell for the 24th straight month, with manufacturers citing U.S. tariffs and increased client hesitancy as factors behind subdued demand conditions.

Factory output also contracted for a ninth consecutive month, at a quicker pace than in April, the survey showed.

To mitigate the impact of the U.S. tariffs on cars and other manufacturing sectors, which are the backbone of the Japanese economy, Tokyo has held four rounds of trade talks with Washington and plans a fiscal package to support households and businesses.

In a positive sign, input cost inflation eased to a 14-month low in May, while output price inflation slowed to the softest in nearly four years.

Employment increased for the sixth month in a row as firms filled vacancies and prepared for anticipated production increases, according to the survey.

Business confidence on future output strengthened from April’s near five-year low, with firms citing expectations of stronger market demand particularly in the semiconductor industry.

However, some expressed concerns over U.S. tariffs, inflation and Japan’s declining population as potential headwinds to growth, the survey showed.