Japan manufacturing extends growth, caps best quarter since Q1 2014, PMI shows

Japan's manufacturing sector experienced robust growth in June, culminating in its best quarterly performance in over a decade, according to a business survey. The S&P Global Japan Manufacturing Purchasing Managers' Index (PMI) rose to 54.8, up from 54.5 in May, indicating expansion for the sixth consecutive month and aligning with preliminary readings.

Manufacturers saw a significant surge in new orders, reaching the fastest pace since January 2022. This growth was fueled by strong domestic demand and clients actively building inventories to hedge against potential shortages and price increases stemming from the Middle East conflict. Export orders also showed solid growth, contributing to the overall positive trend.

Production levels increased at the second-fastest rate since January 2022, with intermediate and investment goods producers leading the expansion. While output from consumer goods makers saw a slight decline, the overall manufacturing output remained strong. Employment in the sector also grew for the 19th consecutive month, with hiring rates reaching their joint-fastest pace since April 2018. Despite this, backlogs of work continued to accumulate, increasing for the sixth month in a row at the steepest rate since February 2014.

Price pressures persisted, with input cost inflation remaining unchanged from May at the joint-quickest rate since September 2022, due to supplier shortages and shipping delays. Selling price inflation saw only a slight easing from May's multi-year high. Looking ahead, manufacturers expressed optimism about future output, anticipating demand for AI and semiconductors, as well as increased capital investment. However, sentiment remained below its historical trend due to concerns regarding the U.S.-Israeli war with Iran, rising costs, labor shortages, and the depreciation of the yen.

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The latest PMI survey suggests that Japanese manufacturers enjoyed the strongest quarterly performance in over 12 years in June. Factories continued to expand their production levels at a solid pace, spurred by another marked improvement in customer demand.