Japan’s Factory Slump Deepens in April While Services Sector Rebounds

Japan's manufacturing sector contracted for the tenth straight month in April, with confidence among manufacturers falling to nearly five-year lows, according to the au Jibun Bank flash purchasing managers’ index (PMI). The index edged up slightly to 48.5 from 48.4 in March but remained below the 50.0 threshold that separates growth from contraction, highlighting persistent weakness in industrial activity.

The decline was driven by a steep drop in new orders, which fell at the fastest pace since February 2024. Business sentiment among manufacturers also plunged to its lowest level since June 2020, reflecting mounting concerns over U.S. President Donald Trump’s tariff policies, global economic uncertainty, labor shortages, and Japan's aging population.

Annabel Fiddes, Economics Associate Director at S&P Global Market Intelligence, noted that these challenges dampened confidence across both manufacturing and services sectors.

In contrast, Japan’s services sector returned to growth. The flash services PMI rose to 52.2 in April from 50.0 in March, marking the strongest expansion in three months. Increased customer demand helped drive a solid rebound in sales, offering a glimmer of hope for Japan's fragile recovery.

Input cost inflation surged across both sectors, rising at the fastest rate in two years. This prompted businesses to raise selling prices, adding to the strain on consumers and businesses alike.

The flash composite PMI, which combines manufacturing and services data, rose to 51.1 from 48.9 in March, indicating a modest return to overall growth.

The latest survey aligns with recent data showing accelerated wholesale inflation, underlining continued cost pressures amid trade policy uncertainties and sluggish domestic demand.