Japan’s manufacturing sector endured its worst month in nearly a year in December, as market uncertainty and sluggish demand sent output and new orders plummeting, raising concerns about the health of the world’s third-largest economy.
The au Jibun Bank Japan manufacturing purchasing managers’ index (PMI) – a closely watched gauge of factory activity – plunged to 47.9 in December, down from 48.3 in November. This marked the seventh consecutive month that the index remained below 50, the threshold separating expansion from contraction.
The latest PMI reading represented the weakest performance since February 2023, highlighting the deepening malaise gripping Japan’s industrial sector. The survey revealed a particularly sharp decline in electronics demand, a crucial pillar of the economy, indicating broader weakness in consumer confidence and global trade. Some respondents also pointed to sluggish investment activity, suggesting businesses are holding back on spending amid the uncertain economic climate.
Adding to the woes, input prices climbed at their fastest pace in three months due to soaring raw material costs. Several respondents attributed this rise to the weakening yen, which makes imports more expensive. While output prices continued to increase in December, the pace of growth slowed to its weakest in over two years, a sign that businesses are struggling to pass on higher costs to consumers in the face of tepid demand.
“Japanese manufacturers are facing a perfect storm of headwinds,” commented Annabel Fiddes, economics associate director at S&P Global Market Intelligence, which compiles the PMI survey. “Weak global demand, a depreciating yen, and ongoing supply chain disruptions are all weighing heavily on the sector.”
The December PMI data paints a worrying picture for Japan’s economy, which has already been grappling with rising inflation and slowing growth. Analysts warn that the continued contraction in the manufacturing sector could spill over into other parts of the economy, further dampening overall economic activity.