Japan’s Factory Activity Shrinks as Confidence Dips

Japan’s factory activity contracted for the tenth consecutive month in April, with confidence among manufacturers falling to nearly five-year lows, according to a private-sector survey. The decline was driven by concerns over U.S. President Donald Trump’s tariff policies and broader global economic uncertainty. The au Jibun Bank Japan flash manufacturing purchasing managers’ index (PMI) stood at 48.5 in April, slightly above March’s 48.4 but still below the 50.0 mark that separates growth from contraction.

Manufacturing Struggles Amid Global Uncertainty

The manufacturing subindex for new orders dropped at the fastest pace since February 2024, and business confidence in the sector worsened to its lowest level since June 2020. “Uncertainty over the global economic outlook and trade environment, staff shortages, and an ageing population dampened confidence across both the manufacturing and service sectors,” said Annabel Fiddes, Economics Associate Director at S&P Global Market Intelligence.

Positive News in the Service Sector

On a more positive note, Japan’s service sector activity returned to growth, with the au Jibun Bank flash services PMI rising to 52.2 in April, up from 50.0 in March. The increase was driven by stronger customer demand, which led to the highest sales growth in three months. Despite these positive signs, inflationary pressures remained high, with input prices rising at the fastest rate in two years, prompting firms to raise sales prices.

Impact of Tariffs and Inflation

The ongoing cost burden from inflation was compounded by uncertainty surrounding U.S. tariff policies, as shown in Japan’s March wholesale inflation data. Meanwhile, the au Jibun Bank flash Japan composite PMI, which combines manufacturing and service sector activity, swung back to growth, rising to 51.1 from 48.9 in March, signaling some recovery across the economy.