The solid upturn in output was supported by a sustained and strong rise in new work, but also efforts to expand inventories due to supply chain disruptions and rising purchasing costs that were often attributed to the war in the Middle East.
Notably, both input costs and output charges increased at rates rarely exceeded in over 24-and-a-half-years of data collection.
Japanese manufacturers expanded production levels further in May.
The headline S&P Global Japan manufacturing PMI slipped from April’s 51-month high of 55.1 to 54.5 in May, consistent with a marked improvement in business conditions.
The sector’s health has now strengthened in each of the past five months.
Increased production requirements led to another month of job creation across the sector in May.
The headline S&P Global Japan manufacturing PMI slipped from April’s 51-month high of 55.1 to 54.5 in May. The reading was consistent with a marked improvement in overall business conditions, S&P Global said in a release.
The health of the sector has now strengthened in each of the past five months. Sub-sector data indicated a broad-based improvement in operating conditions in May, with makers of intermediate goods recording the strongest upturn.
As has been the case since the start of 2026, Japanese factory production increased in May. Although the rate of expansion slowed from April’s more than 12-year record, it remained marked overall and comfortably above the survey’s average.
According to anecdotal evidence, higher output was due to increased sales but also efforts to expand inventory levels. Similarly, overall new business expanded at a softer but still solid pace in May.
There were reports of clients placing orders as part of efforts to build up their safety stocks due to disruptions caused by the Middle East war.
The slight slowdown in total new order growth occurred despite a stronger rise in foreign demand, with new export business increasing at the fastest pace in five years.
In order to support higher production and safeguard against future shortages and supplier price hikes, manufacturers raised their purchasing activity again in May. The rate of growth was the fastest in four years.
However, the time taken for inputs to be delivered continued to increase sharply and at one of the fastest rates seen outside of the pandemic. This was frequently linked to the impact of the Middle East war on supply chains.
Difficulties obtaining inputs also dampened efforts to expand inventories. Moreover, stocks of inputs rose at a fractional pace after rising only slightly in April.
Meanwhile, inventories of finished items were depleted due to fulfilment of orders.
Increased production requirements led to another month of job creation across the manufacturing sector. Employment rose solidly overall, with the rate of payroll growth edging up to the second-quickest in over four years.
Capacity pressures persisted, however, as highlighted by a further strong increase in outstanding business. This was partly linked to rising order intakes, but also input shortages.
Cost pressures remained intense midway through the second quarter, with average input costs rising to the greatest extent since September 2022. Increased labour and transportation costs were noted as drivers of inflation.
As a result, average selling prices increased at a rapid pace that was the quickest since October 2022.
Business confidence in Japan regarding future output picked up from April’s one-year low, but remained below the historical average in May.
While Japanese firms were often hopeful that greater customer demand, new product development and growth in key sectors will boost production, geopolitical uncertainty and rising costs dampened forecasts at some businesses.
Fibre2Fashion News Desk (DS)
