Japan’s factory activity contracted at a slower pace in May, marking the smallest decline in five months, according to the final au Jibun Bank Japan Manufacturing PMI.

The index rose to 49.4 from 48.7 in April, remaining below the 50.0 threshold for the 11th straight month.

This May figure beat the preliminary estimate of 49.0 and was the highest so far this year. But worries over US tariffs have dampened the recovery from an almost year-long contraction.

The survey by S&P Global Market Intelligence noted a softer decline in sales and improved job growth.

However, new orders dropped for the 24th consecutive month, with manufacturers citing US tariffs and client hesitancy.

Factory output declined for the ninth month, and at a faster rate than in April. Input cost inflation fell to a 14-month low, while output price inflation slowed to its lowest in nearly four years.

🔗 Source: Reuters

🧠 Food for thought

1️⃣ Japan’s manufacturing faces one of its longest contraction cycles

The current manufacturing downturn in Japan represents an unusually prolonged period of contraction, with the PMI remaining below the critical 50.0 threshold for 11 consecutive months 1.

Even more concerning is that new orders have been declining for 24 straight months—a full two years of deteriorating demand that predates the recent tariff concerns 1.

This extended weakness stands in contrast to Japan’s historical pattern of manufacturing resilience, suggesting structural challenges beyond normal cyclical downturns.

While the slight improvement to 49.4 in May offers a glimmer of hope, it remains part of a concerning longer-term trend rather than signaling a definitive turnaround 2.

Manufacturing output has now contracted for nine consecutive months, creating significant pressure on a sector that has traditionally been a cornerstone of Japan’s economic strength 1.

2️⃣ U.S. tariffs create ripple effects across global manufacturing

Japan’s manufacturing concerns mirror similar developments globally, with the recent announcement of 50% U.S. steel tariffs creating particular uncertainty for manufacturers 3.