Japan factory growth hits decade high in June as clients stockpile
Sales rose at its fastest pace since 2022 amidst Middle East stockpiling rush.
Japanese manufacturers continued to see a marked improvement in business conditions in June, closing out their strongest quarterly performance in over a decade as customers rushed to build up stocks against ongoing global supply disruption.
The headline S&P Global Japan Manufacturing Purchasing Managers’ Index climbed to 54.8 in June from 54.5 in May, marking a sixth straight month of improving conditions and the second-sharpest rate of growth since January 2022, behind only April this year. Taken together, the second quarter rounded off the strongest performance since Q1 2014.
Inflation pressures amongst fiercest since 2001
Business conditions improved across all three monitored market sectors, led by makers of intermediate goods, with output rising at close to its fastest pace since the start of 2022, driven chiefly by stronger sales.
Overall new orders grew at their quickest rate in over four years, with firms reporting that clients were topping up inventories to cushion themselves against the price and supply shock stemming from the war in the Middle East. Export orders rose at a softer pace than total new business, though foreign demand still increased solidly overall.
Supply chains remained under considerable strain, with widespread reports of vendor shortages and shipping delays tied to the conflict driving a further rapid lengthening of delivery times — though not quite as severe as the disruption seen in April and May. Those shortages also limited manufacturers’ own efforts to restock, even as purchasing activity rose solidly; stocks of finished goods fell for a 22nd consecutive month as firms drew down existing supplies to meet orders.
Cost pressures showed no sign of easing. Input price inflation held at May’s 44-month high, amongst the fastest rates recorded since the survey began in 2001, with respondents citing steeper costs for raw materials, oil and transport. Manufacturers passed much of that burden on to customers, though the rate of increase in selling prices eased back slightly from May while remaining historically elevated.
Employment rose at its joint-quickest pace since April 2018, matching January 2026’s rate, as firms expanded capacity to meet demand. Even so, backlogs of work built up at their joint-fastest rate since February 2014, pointing to continued strain on overall capacity.
Goods producers remained broadly confident that output would keep rising over the coming year, buoyed by expectations of stronger demand for AI-related technology and semiconductors, higher capital spending, and easing geopolitical uncertainty. However, worries over the Middle East conflict, intense cost pressures and labour shortages kept sentiment below its historical average.
Annabel Fiddes, Economics Associate Director at S&P Global Market Intelligence, said Japanese manufacturers had enjoyed their strongest quarterly performance in over 12 years in June, with production continuing to expand solidly and new business rising at its fastest pace in nearly four-and-a-half years amidst robust demand for AI-related technology and semiconductors.
She cautioned, however, that growth remained at least partly driven by stockpiling linked to the Middle East war, with supplier performance deteriorating substantially again in June amidst shipping delays and shortages, keeping inflationary pressures among the most intense since the survey began in 2001. She added that considerable uncertainty remained over whether this pace of growth could be sustained into the second half of the year, given that short-term stockpiling activity was likely to fade, particularly if costs kept rising and pressure on client spending intensified.
