Japan’s manufacturing industry experienced a significant rebound at the start of the second quarter of the year, marking its healthiest performance in over four years.
The S&P Global Japan Manufacturing Purchasing Managers’ Index (PMI) rose to 55.1 in April from March’s 51.6, comfortably staying above the 50.0 mark that indicates growth. The rate of production accelerated at its quickest pace since February 2014.
According to Annabel Fiddes, economics associate director at S&P Global Market Intelligence, this rebound was partially fueled by a solid increase in sales. However, she noted that the growth was also heavily influenced by manufacturers’ deliberate efforts to build up their inventory levels.
“The strain on supply chains was stark, with lead times for inputs increasing at the fastest rate in 15 years – back when the Tohoku earthquake caused widespread disruption across Japan,” Fiddes noted.
Reports from manufacturers also pointed to a spike in demand for AI-related technology that helped boost total sales.
However, the sector also saw the most significant rise in production costs since October 2022, driven by supplier shortages and price revisions. Respondents frequently mentioned more costly raw materials, oil, and transport in the latest survey period.
In response, companies raised selling prices at a steep pace this month. Output charge inflation also saw its fastest recorded pace since late 2022.
Japanese manufacturers also continued to hire more staff to boost their production and keep up with the surge in customer orders. The hiring push marks the second-fastest rate of job creation the industry has seen since early 2022.
Despite these efforts, factories showed signs of struggling to keep pace with the workload. The amount of backlogs grew at its fastest and most consistent rate since February 2014.
While the current data shows a surge in activity, the outlook remains cautious. Business optimism for the coming year has dropped to one of its lowest levels since mid-2020.
Fiddes warned that the current boost to manufacturing may be temporary.
She suggested that unless market uncertainty decreases and supply chains become more stable, the momentum may fade—particularly if customer demand weakens and companies decide to stop building up their stocks.
