Japan’s Manufacturing Sector Contracts at Fastest Pace in Six Months

Japan’s factory activity contracted at the steepest pace since March, as weak overseas demand and U.S. tariffs weighed heavily on output and orders, a private survey showed on Wednesday.

The S&P Global Japan Manufacturing Purchasing Managers’ Index (PMI) dropped to 48.5 in September, down from 49.7 in August and marking its lowest level in six months. The index remained below the 50.0 threshold, signaling contraction for a fifth consecutive month. The figure was largely in line with a flash reading of 48.4.

Survey participants pointed to sharper declines in output and new orders, with new business falling at its fastest rate since April. Firms cited weak demand from China and the impact of U.S. tariffs as key drags on exports, though the pace of export order declines slowed from August.

Employment growth also cooled to its weakest pace since February, reflecting a cautious hiring stance amid subdued business confidence, which slipped to a five-month low.

On the inflation front, input cost pressures rose to a three-month high, driven by higher raw material and labor expenses. However, the pace remained below levels seen in the first half of the year. Manufacturers raised their selling prices at a solid rate in an effort to protect profit margins.

The survey underscores persistent headwinds facing Japan’s economy, with the manufacturing sector showing little sign of a near-term recovery amid global trade tensions and tepid external demand.