Japan factory activity roars back to a near 4-year high

Output, orders and jobs all rose at their fastest pace since January 2022.

Japan's manufacturing sector has bounced back with unexpected vigour, recording its strongest performance in nearly four years last month as a revival in global demand lifted output, new orders and employment simultaneously, according to S&P Global survey released Monday.

The S&P Global Japan Manufacturing Purchasing Managers' Index climbed to 53.0 in February, up from 51.5 in January and the highest reading since May 2022. Any figure above 50 signals an improvement in conditions across the sector, and analysts said the pace of the advance — the most pronounced in 45 months — pointed to a genuinely broad-based recovery rather than a statistical blip.

Production expanded at its fastest clip in just over four years, whilst total new orders grew at a solid pace not seen since January 2022. Export orders proved particularly buoyant, posting their sharpest rise since June 2021, with manufacturers citing strengthening customer appetite across Europe and other parts of Asia. Companies attributed much of the upturn to more favourable demand conditions globally as well as the launch of new product lines.

Hiring accelerated alongside production. Employment in Japan's manufacturing industry rose for the fifteenth consecutive month in February, with the rate of payroll growth the quickest in just over four years. Firms said they were actively expanding their workforces to build capacity in response to the sustained increase in sales.

Business confidence also picked up sharply. Sentiment regarding the 12-month production outlook climbed to its highest level since June 2024, driven by hopes that global demand will continue to recover and push up sales — particularly in technology and automotive sectors. A number of manufacturers also cited optimism following the recent re-election of the Takaichi administration.

Annabel Fiddes, economics associate director at S&P Global Market Intelligence, described the February figures as a significant step forward. The results signal the quickest increases in output, sales, employment and purchasing activity for more than four years, she said, adding that firms were also much more upbeat about the year ahead.

The recovery was not without its complications, however. Supply chains came under greater strain during the month, with vendor lead times lengthening as stock and staff shortages at suppliers combined with shipping delays. Purchasing activity rose at its fastest pace since May 2022 as firms scrambled to secure materials, yet companies maintained a cautious approach to inventory-building, allowing both pre- and post-production stocks to edge lower.

Inflationary pressures remained a concern. Input costs were pushed higher by rising prices for raw materials, labour and transport, compounded by the weakness of the yen exchange rate. While the rate of input price inflation eased slightly from January, it remained sharp by historical standards, and many manufacturers passed their higher costs on to customers through increased selling prices.

Ms Fiddes noted that, although the softening of cost pressures was encouraging, input price inflation was still elevated. She said that if demand continues to strengthen, firms will be in a better position to pass on higher costs to customers, thereby helping to alleviate pressure on operating margins.

The results were broadly consistent across much of the sector, with conditions strengthening in investment goods and intermediate goods industries. Consumer goods manufacturers were the exception, with activity there broadly flat on the month.

The PMI data are compiled by S&P Global from monthly surveys of purchasing managers at around 400 Japanese manufacturing companies. The survey was conducted between 9 and 20 February 2026.