Japan’s manufacturing sector returned to growth in January, posting its strongest improvement since 2022 as demand, output and hiring all rebounded.
Summary:
Japan’s manufacturing sector returned to expansion in January, recording its strongest improvement since August 2022.
Output and new orders rose for the first time in well over a year, signalling a broad-based recovery in demand.
Employment growth accelerated sharply as backlogs of work increased for the first time in three-and-a-half years.
Cost pressures intensified, pushing selling price inflation to a 19-month high, partly reflecting yen weakness.
Improved demand optimism was tempered by concerns around inflation and the durability of future growth.
Japan’s manufacturing sector showed its clearest signs of revival in nearly three-and-a-half years at the start of 2026, with January PMI data pointing to a broad-based improvement in activity, demand, and employment. The latest survey suggests that factories are emerging from a prolonged period of stagnation, supported by stronger domestic and external demand, even as rising cost pressures re-emerge as a key risk.
The headline S&P Global Japan Manufacturing PMI rose to 51.5 in January from 50.0 in December, moving back into expansion territory and marking the strongest improvement in operating conditions since August 2022. While the pace of growth remains moderate, the breadth of improvement across output, orders, and hiring underscores a notable shift in momentum.
Production returned to growth for the first time since mid-2025 as new business inflows strengthened. Total new orders expanded at their fastest pace in nearly four years, reflecting improved demand conditions and successful product launches. Export demand also improved meaningfully, with overseas orders rising for the first time since early 2022, supported by firmer demand from key markets including the United States and Taiwan. Investment goods producers led the recovery, though gains were seen across all major manufacturing segments.
The rebound in demand placed renewed pressure on capacity. Backlogs of work increased for the first time in three-and-a-half years, prompting firms to step up hiring. Employment growth accelerated to its strongest pace in more than three years as manufacturers sought to rebuild capacity after a prolonged period of caution. Purchasing activity also increased for the first time since late 2024, reinforcing the view that firms are positioning for sustained output growth.
Despite the improving growth backdrop, inventories continued to decline. Input stocks were drawn down as materials were used to support higher production, while finished goods inventories fell at a slower pace as companies fulfilled rising orders. Supply-chain conditions remained mildly stretched, with delivery times lengthening due to staff shortages and low supplier inventories.
Inflation pressures intensified notably. Input costs rose at the fastest pace in nearly a year, driven by higher labour and raw material costs as well as the weaker yen. Firms passed through some of these pressures, lifting factory-gate prices at the sharpest rate in 19 months. While confidence about the year ahead remains generally positive, supported by global demand for semiconductors and automobiles, business sentiment eased slightly as firms weighed inflation risks against the sustainability of demand.
Overall, the January PMI signals that Japan’s manufacturing sector is regaining momentum, but the resurgence in price pressures will be closely watched by policymakers and markets alike.
Earlier:
- Japan PM softens weak yen comments as election and intervention risks collide
- Former "Mr Yen" Watanabe warns of risk of renewed yen selling backlash into Japan election
- BoJ: Moderate recovery, inflation persistence reinforce cautious further tightening case
