Japan Manufacturing PMI Stalls in December as Demand Shows Signs of Stabilization

Japan’s manufacturing activity showed signs of stabilization in December, ending a five-month period of contraction, as demand declined at a slower pace, according to the latest private-sector survey. The S&P Global Japan Manufacturing Purchasing Managers’ Index (PMI) rose to 50.0 in December from 48.7 in November, reaching the critical break-even level that separates expansion from contraction. This improvement suggests that conditions in Japan’s manufacturing sector have stopped deteriorating, even though growth momentum remains fragile.

According to S&P Global Market Intelligence, Japan’s manufacturing industry stabilized toward the end of the year as declines in new orders eased. While overall demand remained subdued, the pace of contraction in new orders was the softest since May 2024. Some manufacturers reported improved sales performance, supported by new project launches and stronger-than-expected customer spending, indicating pockets of resilience within the sector.

Performance varied across manufacturing segments. Consumer goods and investment goods producers reported improved business conditions, reflecting relatively firmer domestic demand. In contrast, intermediate goods manufacturers continued to struggle, highlighting uneven recovery dynamics within Japan’s industrial landscape. Export-oriented manufacturers also faced challenges, as new export orders declined for another month, albeit at a slower pace than in November. Weak demand from Asia, particularly in the semiconductor sector, weighed on overseas sales.

Looking ahead, business sentiment for the next 12 months softened slightly from November but remained above the survey’s long-term average. Manufacturers expressed cautious optimism, with expectations that new product releases and stronger demand in key industries such as automobiles and semiconductors could support sector performance in 2026. However, firms also cited downside risks, including a sluggish global economy, Japan’s ageing population, and rising production costs.

Cost pressures intensified in December, as input prices rose at their fastest pace since April. Higher raw material, labor, and transportation costs, combined with the weaker yen, contributed to inflationary pressures. Despite these challenges, staffing levels increased for the 13th consecutive month, suggesting companies remain confident in longer-term demand prospects. Meanwhile, the Bank of Japan’s recent interest rate hike to levels not seen in three decades adds another layer of uncertainty for manufacturers navigating the evolving economic environment.