Japan’s Factory Activity Contracts for Eighth Month Amid Trade Uncertainty

Japan’s manufacturing sector shrank for the eighth straight month in February, as weak global demand and concerns over U.S. trade policies weighed on business confidence, according to the final au Jibun Bank Japan Manufacturing PMI. The index edged up to 49.0 from January’s 48.7 but remained below the 50.0 threshold, signaling continued contraction.

Manufacturers cited subdued demand from key markets, including the U.S., Europe, and China. Output declined for the sixth consecutive month, though at a slower pace, while new orders remained weak, continuing a downward trend since mid-2023. Business optimism softened to its lowest level since June 2020, reflecting mounting concerns over economic uncertainty.

Rising input costs, driven by higher raw material, labor, and utility expenses, along with exchange rate fluctuations, prompted firms to increase selling prices at a faster rate. Meanwhile, employment levels stagnated as new hires were offset by retirements and voluntary departures.

Concerns over U.S. President Donald Trump’s potential tariff policies added to uncertainty, with businesses fearing further disruptions to global trade. Many manufacturers highlighted the risk of prolonged weakness in domestic and international markets, slowing economic recovery.

Despite persistent challenges, Japanese manufacturers remained cautiously optimistic about future output. However, the outlook remains fragile amid ongoing global headwinds.