Japan's manufacturing sector kicked off 2026 with its strongest performance in nearly four years, signaling a significant turnaround with growing output, new orders, and a notable surge in employment.
📈 Key Positive Highlights
Strong Growth Signal: The headline Japan Manufacturing PMI rose to 51.5 in January, marking the first expansion since June and the fastest pace of improvement since August 2022.
Demand Bounces Back: New orders grew for the first time since May 2023, at the fastest rate in nearly four years. New export orders also saw their first increase since February 2022, driven by demand from the U.S. and Taiwan.
Production & Employment Surge: Output returned to growth, and employment rose at its most pronounced rate in 40 months (since September 2022) as companies expanded capacity.
Confidence & Capacity Building: Companies grew more confident in future output, citing stronger global demand for semiconductors and autos. Purchasing activity also expanded for the first time since September 2024 to support higher production.
Broad-Based Improvement: Operating conditions improved across all monitored sub-sectors, led by makers of investment goods.
⚠️ Key Challenges Noted
Sharp Inflationary Pressure: Input costs rose at the sharpest rate in nearly a year, influenced by higher raw material costs and a weaker yen. In response, selling price inflation accelerated to a 19-month high.
Ongoing Supply Chain Issues: Vendor performance continued to deteriorate slightly due to staff shortages and low supplier stock levels.
Cautious Optimism: While overall business sentiment remains positive, the degree of optimism slipped to a 3-month low in January as some firms expressed concerns about rising inflation and future customer demand.
💬 Expert Commentary
Annabel Fiddes, Economics Associate Director at S&P Global Market Intelligence, noted that the sector is gearing up for further growth but cautioned that inflation remains a key concern. The recent weakening of the yen has intensified cost pressures, and monitoring future price trends will be crucial as they could impact demand and investment.
The data is compiled from a survey of around 400 manufacturers. A PMI reading above 50 indicates month-on-month expansion, while below 50 indicates contraction.
