Japan's Factory Sector Continues to Contract, Services Sector Shows Resilience
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Japan's factory activity continued to shrink for the sixth consecutive month in December, highlighting the economy's increasing reliance on the service sector, as reported by Reuters. The au Jibun Bank flash Japan manufacturing purchasing managers' index (PMI) fell to 49.5 in December, down from 49.0 in November. The index has remained below the 50.0 threshold, indicating contraction, since June.
"Diverging trends continued to be seen in demand, with services firms seeing the strongest rise in new business in four months, while goods producers saw a stronger reduction in orders," said Usamah Bhatti, economist at S&P Global Market Intelligence.
Business confidence in the manufacturing sector softened to its lowest level since May 2022. Persistent cost pressure is also a concern, with input inflation rising at its fastest pace in four months and output prices surging to their highest level since July.
Meanwhile, the au Jibun Bank flash services PMI rose to 51.4 in December, up from 50.5 in November. While this represents a four-month high in growth, business sentiment in the service sector dipped due to concerns over labor shortages and rising costs. These increased input costs led to the fastest rise in average selling prices in eight months.
The au Jibun Bank flash Japan composite PMI, which combines both manufacturing and service sector activity, stood at 50.8 in December, an increase from 50.1 in November.
A recent Bank of Japan "tankan" survey showed that large manufacturers' sentiment improved slightly, and non-manufacturers remain optimistic about business conditions. However, companies anticipate a worsening of business conditions in the next three months, citing weak global demand and concerns over potential tariffs from the new US administration.