Japan Factory Activity Shows Signs of Expansion in May

A recent business survey revealed that Japan’s factory activity experienced growth for the first time in a year in May, indicating a pickup in manufacturing after a period of sluggishness.

According to the au Jibun Bank flash Japan manufacturing purchasing managers’ index (PMI), the index rose to 50.5 in May from 49.6 in April, surpassing the 50.0 threshold that separates expansion from contraction, marking the first time since May last year.

S&P Global Market Intelligence’s economics associate director, Jingyi Pan, noted that while the expansion in business activity was primarily driven by services, the stabilization of manufacturing output provides optimism for broader growth later in the year. Key subindexes such as output and new orders saw slower contractions, and stocks of purchases increased at the fastest pace in 10 months.

Despite the positive developments, manufacturers’ optimism decreased, and inflationary pressures led to higher input costs and output prices. The business-to-business wholesale inflation in Japan remained steady at 0.9% in April due to the depreciation of the yen, with expectations for an acceleration in the coming months.

In the service sector, growth continued in May, albeit at a slower rate as new business expansion decelerated, as shown by the drop in the au Jibun Bank flash services PMI to 53.6 in May from 54.3 in April. Nevertheless, strong business confidence drove an increase in employment levels at a faster pace.

Both input costs and output prices rose more slowly, but inflation remained above their long-run averages. The au Jibun Bank flash Japan composite PMI, which combines manufacturing and service sector activity, slightly increased to 52.4 in May from 52.3 in April, reaching the highest level since last August.