Japan’s manufacturing sector maintained strong growth in June as new orders increased at their fastest pace in more than four years. However, businesses continued to face elevated cost pressures linked to the ongoing war involving Iran, according to a survey released on Tuesday.
Japan Manufacturing PMI Rises in June
The preliminary S&P Global Japan Manufacturing Purchasing Managers’ Index rose to 54.9 in June, up from 54.5 in May.
The latest reading moved closer to April’s level of 55.1, which represented the strongest manufacturing expansion since January 2022.
A PMI reading above 50.0 signals growth in business activity, while a figure below that threshold indicates contraction.
New Orders Record Strongest Growth in Four Years
Japanese factory output increased at a slightly faster pace during June. At the same time, new orders recorded their strongest growth in more than four years.
According to the survey, some of this increase came from customers building inventories. Businesses were reportedly concerned about possible supply-chain disruptions and further price increases caused by the Iran war.
This stockpiling activity provided additional support to Japan’s manufacturing sector during the month.
However, growth in new export orders slowed slightly compared with May. Export demand had previously increased at its fastest pace in five years.
Middle East Conflict Keeps Costs Elevated
Inflation affecting manufacturers’ input and selling prices eased during June. Nevertheless, cost pressures remained close to their highest levels since late 2022.
The continuing conflict in the Middle East pushed up the cost of energy, fuel and essential raw materials. As a result, Japanese companies continued to face significant pressure on their operating expenses.
Manufacturing Employment Accelerates
Employment across Japan’s manufacturing sector also strengthened considerably.
Factories increased their workforce at the fastest pace in more than eight years, reflecting improved production levels and stronger demand.
The rise in hiring suggests that manufacturers remained confident enough to expand capacity despite persistent uncertainty surrounding global trade and energy costs.
Japan’s Services Sector Returns to Growth
Japan’s services sector recovered in June following a period of stagnation in May.
The preliminary Japan Services PMI increased to 51.8 from 50.0. Improved domestic economic conditions supported the recovery, although demand from international customers declined at a faster pace.
Meanwhile, the flash Japan Composite PMI, which measures activity across both manufacturing and services, climbed to 52.5 in June from 51.1 in May.
The increase showed that overall business activity across the Japanese economy gained momentum during the month.
Stockpiling May Provide Only Temporary Support
Annabel Fiddes, Economics Associate Director at S&P Global Market Intelligence, said Japan’s overall business growth accelerated for the first time since the Middle East conflict began.
The latest figures point to a strong economic performance during the second quarter. However, Fiddes warned that part of the current expansion is being supported by companies and customers stockpiling goods because of concerns surrounding the war.
This temporary source of demand could weaken in the coming months, potentially slowing the pace of growth across Japan’s manufacturing sector.
