Japan's manufacturing sector contracts at slower pace in December, PMI shows

Japan's manufacturing activity contracted at a slower pace while the service sector lost some steam in December, private-sector surveys showed, weighing on the economy at the end of 2025.

Looking ahead to 2026, business confidence was robust but waned from the previous month particularly in manufacturing, attributing the uncertain outlook to global economic conditions, an ageing population and rising costs.

The S&P Global flash Japan Manufacturing Purchasing Managers' Index (PMI) rose to 49.7 from 48.7 in November, extending a contraction for the sixth straight month. The 50.0 threshold separates expansion from contraction.

"Growth remains centred on the service sector... as manufacturing production and sales weakened further," said Annabel Fiddes, economics associate director at S&P Global Market Intelligence.

While factory output waned slightly in December from November, demand for goods fell at the slowest rate in a year and a half. Fiddes added the improvement suggests the sector could be stabilising.

A closely watched Bank of Japan quarterly survey released on Monday showed big Japanese manufacturers' business sentiment hit a four-year high in the three months to December. However, firms expected conditions to worsen three months ahead as they fret over the impact of higher U.S. tariffs and soft consumption.

Meanwhile, the flash Japan services PMI slightly fell to 52.5 in December from 53.2 in November. Combining manufacturing and services, the flash composite PMI declined to 51.5 in December from 52.0 in the previous month.

At the composite level, the survey showed overall employment rose at the fastest pace since May 2024 and outstanding business expanded at the quickest pace in two-and-a-half years. On the other hand, the rate of inflation climbed at the fastest pace in eight months and both goods and services firms raised their selling prices.