Japan’s factory activity shrank for the eighth straight month in February, signaling ongoing economic weakness. Concerns over U.S. trade policies and sluggish global demand weighed heavily on manufacturers.
The final au Jibun Bank Japan Manufacturing Purchasing Managers’ Index (PMI) edged up to 49.0 from 48.7 in January. While this marked the slowest contraction in three months, it remained below the 50.0 threshold that separates expansion from decline.
Manufacturers struggled with weak demand from key markets, including the United States, Europe, and China. Many firms cited declining client confidence both domestically and internationally.
The output subindex contracted for the sixth consecutive month, reflecting softer global demand. However, the pace of decline was less severe compared to January’s data.
New orders remained in contraction territory, continuing a trend that began in mid-2023. Businesses reported hesitancy from clients amid economic uncertainties and trade concerns.
Despite ongoing challenges, Japanese manufacturers maintained a cautiously optimistic outlook for future growth. However, business confidence fell to its lowest level since June 2020.
Fears of escalating U.S. trade restrictions have added to uncertainty in Japan’s manufacturing sector. President Donald Trump’s proposed tariffs on major trading partners could further disrupt supply chains.
“Companies highlighted the risks posed by protectionist trade measures and a slower-than-expected global recovery,” said Usamah Bhatti of S&P Global Market Intelligence.
Employment levels remained stagnant in February as firms balanced hiring with voluntary departures and retirements. Some companies filled full-time vacancies, but overall staffing growth was limited.
Manufacturers faced rising costs for raw materials, labor, and utilities, partly due to currency fluctuations. These pressures forced businesses to raise selling prices at a faster rate.
Higher input costs could weigh on profit margins if demand remains weak. Many firms are struggling to pass on price increases to consumers.
The weaker yen has made imported materials more expensive, further straining production costs. Policymakers are closely monitoring the impact on inflation and business conditions.
Japan’s central bank has maintained its ultra-loose monetary policy despite inflationary pressures. The government is also exploring measures to support struggling industries.
Looking ahead, manufacturers will be watching global economic trends and trade negotiations closely. Any changes in U.S. policies could significantly impact Japan’s export-driven economy.
Firms remain cautious about future investment and expansion plans. Uncertainty in demand and geopolitical risks may slow economic recovery efforts.
Japan’s economic outlook depends on how global markets respond to ongoing trade tensions. Manufacturing will continue to play a key role in the country’s overall growth trajectory.
