Japan’s manufacturing sector experienced a slower pace of contraction in December, signaling potential stabilization after months of decline. The final au Jibun Bank Japan Manufacturing Purchasing Managers’ Index (PMI) increased to 49.6 in December, up from 49.5 in the preliminary reading and 49.0 in November. Although still below the 50.0 threshold that separates growth from contraction, the figure represents the softest decline in three months.
Production and New Orders See Softer Declines
The PMI data showed milder reductions in production and new orders, contributing to the overall improvement. Usamah Bhatti of S&P Global Market Intelligence remarked:
“The headline reading moved closer to neutrality amid softer reductions in both production and new order intakes.”
Production shrank for the fourth consecutive month, but at a slower pace than in November. The decline was driven by subdued demand in both domestic and key overseas markets, with the semiconductor sector noted as a particular source of weakness. New orders contracted for the 19th straight month, reflecting ongoing challenges in demand.
Employment Reaches Highest Level Since April
Employment levels showed a marked improvement in December, reversing the contraction seen in November. This increase brought employment to its highest level since April. Surveyed manufacturers attributed the uptick to labor shortages and preparations for future demand, highlighting a proactive response to anticipated business conditions.
Rising Costs and Adjustments in Prices
Input costs surged in December, growing at their fastest pace since August. Contributing factors included higher costs for raw materials and labor, alongside the weak yen, which exacerbated inflationary pressures. To manage these rising costs, manufacturers raised output prices at the fastest rate in five months, balancing the impact of inflation on their operations.
Optimism Drives Confidence in Future Growth
Despite current headwinds, manufacturers remained optimistic about the outlook for 2025. Many firms highlighted the planned launch and mass production of new products as key drivers of future growth, underscoring their confidence in a positive trajectory for business conditions.
Signs of Recovery Amid Challenges
Japan’s factory activity showed signs of recovery in December, with improvements in production, new orders, and employment signaling a move toward stabilization. While inflationary pressures and demand challenges persist, manufacturers’ confidence and strategic responses offer hope for a stronger year ahead. These developments suggest that Japan’s manufacturing sector is beginning to find its footing after a prolonged period of contraction.
