Japan’s Manufacturing PMI Drops to 47.9 in December Marking a 7-Month Contraction


  • The final Jibun Bank Japan manufacturing purchasing managers’ index (PMI) dropped to 47.9 in December from 48.3 in November, reflecting the weakest reading since February.
  • The index has been below the 50.0 threshold that distinguishes growth from contraction for seven consecutive months.
  • Lower demand was cited from primary export clients situated in China, Europe, and North America, in addition to significant sectors such as electronics.
  • Cost pressures increased amid reports of escalating raw material costs, particularly for imported goods.

Detailed Analysis

In December, the final Purchasing Managers’ Index (PMI) from Jibun Bank Japan for manufacturing shrank to 47.9, down from 48.3 in November. It represented the lowest score since February when the index hit 47.7 and marked the seventh month in a row that the PMI stayed below the 50.0 breakeven point that demarcates growth from contraction.

Demand and Cost Pressures

According to Paul Smith, the Economics Director at S&P Global Market Intelligence, “Demand was noted to have decreased from prominent export clients located in China, Europe, and North America, as well as from crucial sectors such as electronics. Input price inflation surged to a three-month high as cost pressures increased, with reports highlighting higher raw material costs, especially for goods being imported.”

Production and Orders Decrease

Main indexes of output and new order experienced a rapid fall at the highest rate since February due to market uncertainty both domestically in Japan and abroad. The study identified a particularly weak demand in electronics, with some participants noting a slack investment activity.

Impact of Price Inflation and Yen Value

A three-month high was seen in the growth of input prices due to the increase in raw material costs. This was chiefly attributed by some respondents to higher import costs driven by a weaker yen. Despite this, output prices sustained an upward movement in December, albeit it was at the slowest rate seen in over two years.

Future Outlook

Despite the current challenges, manufacturers continue to hold hope for a revival in demand, particularly for products such as semiconductors. It was stated by Smith, “Firms are positive about the upcoming end of client destocking and expect fresh product introductions to contribute to a production uprise in 2024.”

The Japanese government has made slight upward revisions in its economic forecasts for the financial year ending in March compared to its previous predictions. However, a slowdown in the economy is forecast for the upcoming fiscal year commencing in April.

In the context of Forex trading, the Japanese manufacturing sector’s performance and economic forecasts can potentially impact the yen’s trading value. Investors in related assets should monitor these developments closely.

PIP Penguin