Japan Manufacturing PMI Returns to Growth in January on Export Surge

Japan’s manufacturing sector showed renewed momentum in January, returning to expansion for the first time in seven months, driven by a sharp rebound in export demand. According to the latest private-sector survey, the S&P Global flash Japan Manufacturing Purchasing Managers’ Index (PMI) rose to 51.5 in January, up from December’s final reading of 50.0. A PMI reading above 50 indicates growth, signaling that factory activity has moved back into positive territory for the first time since June 2025.

The improvement was broad-based, with key sub-indexes showing encouraging signs. Both factory output and overall new orders ended prolonged periods of contraction. Most notably, new export orders recorded their strongest increase in more than four years and the fastest growth rate since November 2021. This highlights strengthening overseas demand for Japanese manufactured goods, providing a vital boost to the sector.

Recent government data supports this trend, showing that Japan’s exports have increased for four consecutive months through December. Export growth has been underpinned by resilient demand linked to data centre investments, even as shipments to the United States declined. The export-led recovery has helped offset domestic challenges and supported overall industrial activity.

Japan’s service sector also contributed to the improved economic outlook. The flash Japan services PMI climbed to 53.4 in January from 51.6 in December, marking the strongest expansion in services activity since last July. As a result, the flash composite PMI, which combines manufacturing and services, rose to 52.8 from 51.1, reflecting healthier overall private-sector growth.

Rising demand has increased pressure on business capacity, with outstanding work growing at the fastest pace since composite data became available in 2007. This has translated into stronger hiring, with employment across Japan increasing at the quickest rate since April 2019. However, businesses remain cautious. While manufacturers and service firms expect output to grow in the months ahead, confidence has eased slightly due to concerns over rising costs, global economic uncertainty, labor shortages, and Japan’s aging population.

Input price inflation for manufacturers reached a nine-month high, while service-sector cost pressures eased. Both sectors passed higher costs on to customers. Against this backdrop, the Bank of Japan is expected to raise its growth outlook and signal readiness for a future interest rate hike, as yen weakness and firm wage trends keep inflation risks in focus.