Japan’s manufacturing activity contracted for the second month in August as U.S. tariffs weighed on overseas demand, a private-sector survey showed on Thursday.
The S&P Global flash Japan Manufacturing Purchasing Managers’ Index increased to 49.9 in August from July’s final 48.9, but it remained below the 50.0 threshold that separates growth from contraction for two straight months.
“The recovery in manufacturing output may be hard to sustain unless we see an improvement in sales in the near-term,” said Annabel Fiddes, Economics Associate Director at S&P Global Market Intelligence, which compiled the survey.
Manufacturing output showed a modest recovery, with the output index rebounding to growth from a contraction logged in July. However, new orders continued to decline, reflecting weak demand both domestically and internationally.
Foreign orders for Japanese goods fell at the fastest pace in 17 months, underscoring the fragility of the export-reliant manufacturing sector.
Official trade data showed on Wednesday Japan’s exports in July posted the steepest drop since February 2021 given the intensifying impact of U.S. tariffs.
The U.S.-Japan trade deal reached last month would lower Trump’s tariffs on Japanese goods to 15%. Some manufacturers grew more confident about business conditions but overall remained cautious, a Reuters poll found earlier this month.
For manufacturers, input costs also edged up, while selling price inflation eased to its lowest in more than four years, the PMI data showed, indicating higher pressure on profit margins.
In the services sector, activity continued to expand but at a slower pace, with the flash services PMI falling to 52.7 in August from July’s final 53.6.
The composite PMI output index, which aggregates manufacturing and services, rose to 51.9 in August from 51.6 in July to mark the fastest expansion in six months.