Japan's manufacturing sector sees lowest contraction in 3 months

Input price inflation and weakened demand remain a challenge

Japan's manufacturing sector showed signs of improvement at the end of 2024, with softer declines in new orders and output. 

Employment also increased for the ninth time in ten months, reaching the highest level since April. 

Despite this, outstanding business continued to decrease due to the lack of new order growth. Input prices increased to a four-month high, leading to a rise in prices charged by manufacturers.

The au Jibun Bank Japan Manufacturing Purchasing Managers’ Index™ (PMI) for December was 49.6, indicating a slight contraction in the manufacturing sector, but the softest in three months. 

Output decreased marginally, attributed to muted demand, although new product introductions were mentioned. New orders showed signs of stabilising, with a softer reduction in December. However, demand from key markets like China and the US remained low.

Employment growth resumed, reversing a slight reduction in November, as firms prepared for future demand improvement. Inventory levels were managed more efficiently, with a fractional rate of depletion of finished items. Prices continued to rise, driven by higher raw material and labour costs, with manufacturers passing on the increased costs to customers.

Overall, the final PMI data for 2024 indicated a near-stabilisation in Japanese manufacturing conditions.

The softer reductions in production and new order intakes allowed for the addition of staff and preparations for future demand. 

Despite positive sentiment and optimism for the future, challenges like input price inflation and weakened demand from key markets persisted. Hope for recovery in the semiconductor and auto markets provided additional optimism for the manufacturing sector in Japan.