Japan Factory Activity Grows for First Time in 13 Months, PMI Shows

Reuters

11:56 JST, July 1, 2025

TOKYO, July 1 (Reuters) – Japan’s manufacturing sector expanded in June for the first time in 13 months led by an upswing in output, but overall demand remained weak as new orders shrank yet again amid uncertainty over U.S. tariffs, a private sector survey showed on Tuesday.

The final au Jibun Bank Japan Manufacturing Purchasing Managers’ Index (PMI) rose to 50.1 in June from 49.4 in May.

That undershot the flash figure of 50.4, but managed to nudge above the 50.0 threshold that separates growth from contraction for the first time since May 2024.

Among sub-indexes, factory output grew in June to end a nine-month contraction streak, with some respondents citing hopes of improvements in future demand. Others said the production uptick also reflected a need to reduce backlogs of work, according to the survey.

The sub-index gauging manufacturers’ future output expectations rose to a five-month high, while employment expanded in June for the seventh consecutive month.

“The latest PMI data signaled that demand conditions remained challenging for Japanese manufacturers in June, with firms recording further drops in sales both at home and overseas,” said Annabel Fiddes, economics associate director at S&P Global Market Intelligence, which compiled the survey.

“However, companies were more hopeful when looking ahead, which encouraged them to increase their staff numbers and raise production levels for the first time in a year.”

Fiddes said Japan will need to see sustained improvement in customer demand, which is being dampened by uncertainty over U.S. tariffs, for a more durable recovery in production.

The uncertainty drove new orders down for the 25th consecutive month and at a faster pace compared with May. New export orders also extended their slump since February 2022.

Some firms mentioned that the murky outlook for U.S. tariffs was hampering sales, particularly in the semiconductor and automotive sectors, the survey showed.

The Japanese government is scrambling to obtain exemptions from the United States for the 25% car tariffs to protect the domestic auto industry, which is a backbone of Japan’s export-reliant manufacturing sector and the broader economy.

On inflation, the sub-indexes for input and output prices both rose from May, with firms citing higher costs for raw materials, labor and energy, according to the survey.