Japan’s manufacturing sector showed signs of stabilization in December, as the pace of demand decline slowed compared with the previous month, according to a private-sector survey. The improvement brought an end to a five-month period of worsening conditions.
The S&P Global Japan Manufacturing Purchasing Managers’ Index (PMI) came in at 50.0 in December, up from 48.7 in November. The reading marked the break-even level that separates expansion from contraction.
“Japan’s manufacturing industry saw conditions stabilize at the end of the year,” said Annabel Fiddes, associate director of economics at S&P Global Market Intelligence.
Demand trends show gradual improvement
The survey showed that new orders continued to fall in December, but at the slowest pace since May 2024. While many companies still reported subdued demand, some manufacturers saw an improvement in sales, supported by new projects and stronger-than-expected customer spending.
Business conditions improved in the consumer and investment goods sectors, although producers of intermediate goods continued to report weakness.
Export demand also remained under pressure. New export orders declined at a slightly slower pace than in November, partly reflecting softer demand across Asia, particularly in the semiconductor sector.
Outlook remains cautiously positive
Looking ahead to the next 12 months, overall business confidence eased from November but stayed above the survey’s long-term average. Firms expect new product launches and stronger demand from key industries such as automobiles and semiconductors to support performance in 2026.
However, manufacturers also highlighted downside risks, including a sluggish global economy, Japan’s ageing population, and rising costs.
Costs and policy backdrop
Employment in the manufacturing sector increased for a 13th straight month. At the same time, input price inflation accelerated to its fastest pace since April, driven by higher raw material, labor, and transportation costs, as well as the weaker yen.
In December, the Bank of Japan raised interest rates to levels not seen in three decades and signaled that further rate increases remain likely.
