A 54.8 print marks a sixth straight month of expansion and the best quarterly run since Q1 2014, a headline strong enough to support yen-positive sentiment on the growth side, though the detail complicates a clean read. New order growth at its fastest since January 2022 is being partly driven by clients stockpiling against war-related supply disruption rather than pure underlying demand, which raises the risk of a payback once that stockpiling motive fades. Input cost inflation matching a 44-month record keeps the case alive for the BoJ to stay on its gradual tightening path, reinforcing the message from this week's Tankan on entrenched price pressures. The gap between current output strength and only moderate business optimism is worth watching, since S&P Global's own commentary flags real uncertainty over whether this pace holds into the second half.
Japan's manufacturing PMI rose to 54.8 in June, its best quarterly performance since 2014, with new orders growing at the fastest pace since January 2022.
Earlier:
Summary:
- The S&P Global Japan Manufacturing PMI rose to 54.8 in June from 54.5 in May, marking a sixth straight month of improving operating conditions and the strongest quarterly performance since Q1 2014, according to S&P Global
- New order growth hit its fastest pace since the start of 2022, partly driven by clients building inventories to guard against Middle East war-related supply disruption and rising prices
- Output rose at the second-steepest rate since January 2022, with higher sales cited as the main driver
- Input cost inflation matched May's 44-month record, among the quickest since the survey began in 2001, with manufacturers citing raw materials, oil and transport costs
- Selling price inflation eased slightly from May but remained among the fastest in the survey's history
- Employment growth was the joint-steepest since April 2018, though backlogs of work also accumulated at the joint-fastest pace since February 2014
- Annabel Fiddes of S&P Global Market Intelligence said robust demand for AI-related technology and semiconductors supported new business, but flagged uncertainty over whether growth can be sustained once stockpiling fades
Japanese manufacturers posted their strongest quarterly performance in more than 12 years in June, with the S&P Global Japan Manufacturing PMI rising to 54.8 from 54.5 in May, according to the latest survey data. The reading marked a sixth consecutive month of improving operating conditions and rounded off the sector's best quarter since the first quarter of 2014.
New order growth was the standout feature of the report, hitting its fastest pace since the start of 2022. Clients built up inventories to help mitigate the ongoing price and supply shock stemming from the Middle East war, a dynamic that has become a defining feature of the sector's recent performance. Output rose at the second-steepest rate since January 2022, with businesses pointing to stronger sales as the principal driver, and improvement was recorded across all three monitored market sectors, led by makers of intermediate goods. Foreign demand also increased solidly, even as the pace of new export growth softened compared with domestic orders.
Supply-side pressures remained acute. Vendor shortages and shipping delays tied to the conflict led to a further rapid lengthening of average lead times, though the deterioration was not as severe as seen in April and May. Those shortages also limited manufacturers' own ability to build stock, with pre-production inventories rising only slightly despite growth reaching a two-year high, while finished goods inventories fell for a twenty-second consecutive month as firms drew down existing stock to meet orders.
Cost pressures stayed intense. Input price inflation matched May's 44-month record, among the fastest since the survey began in 2001, with manufacturers citing higher costs for raw materials, oil and transport. Firms passed some of that pressure on to customers, raising selling prices again in June, though the pace of charge inflation eased slightly from the prior month while remaining among the quickest on record.
Employment rose at the joint-fastest pace since April 2018, as firms expanded capacity to keep pace with demand, though the level of outstanding business continued to climb, with backlog accumulation running at its joint-quickest since February 2014. Annabel Fiddes, Economics Associate Director at S&P Global Market Intelligence, said demand for AI-related technology and semiconductors had been a particular source of strength, but cautioned that growth remains at least partly driven by short-term stockpiling that is likely to fade, particularly if cost pressures keep mounting and client spending comes under greater strain. Business optimism over the next year improved but stayed below its historical average, weighed down by ongoing concerns over the Middle East conflict, cost pressures and labour shortages.
I suspect we'll hear some jawboning from Japan's Finance Minister soon, attempting to prop up the yen.
