Japan’s manufacturing activity saw a decline in July, entering contraction due to uncertainties surrounding U.S. tariffs, according to a private-sector survey. In contrast, Japan’s service sector continued to outperform the ailing manufacturing industry, with activity growing at its fastest pace in five months, driven by strong demand. “Business activity across Japan’s private sector continued to expand at the start of the third quarter, fueled by stronger growth in the service sector,” stated Annabel Fiddes, economics associate director at S&P Global Market Intelligence, which compiles the PMI.
The S&P Global Japan manufacturing purchasing managers’ index (PMI) fell to 48.8 in July from June’s final reading of 50.1, marking the first time the index had exceeded the 50.0 threshold separating expansion from contraction in 13 months. Key sub-indexes for output and new orders dropped at their fastest rates in four and three months, respectively, as businesses evaluated the impact of U.S. tariffs, the survey indicated. “Uncertainty over future trade policy weighed on expectations regarding the year ahead,” Fiddes added.
Trump announces $550 billion trade deal with Japan
U.S. President Donald Trump announced a trade deal with Tokyo that he claimed would lead to Japan investing $550 billion into the U.S. and implementing a 15 percent tariff on imports from the Asian nation. Meanwhile, the S&P Global Japan services PMI rose to 53.5 in July from 51.7 in June, benefiting from new business growth. However, new export business experienced its first contraction in seven months, and employment growth increased at the slowest rate in nearly two years. Overall, the S&P Global Japan composite PMI for July remained unchanged from June’s 51.5, according to the data.
In June, Japan’s manufacturing sector expanded for the first time in 13 months, driven by an upswing in output; however, overall demand remained weak as new orders decreased once again amid uncertainties over U.S. tariffs. The final au Jibun Bank Japan Manufacturing Purchasing Managers’ Index (PMI) rose to 50.1 in June from 49.4 in May. Although this was below the flash figure of 50.4, it managed to surpass the 50.0 threshold that separates growth from contraction for the first time since May 2024.
Among sub-indexes, factory output grew in June, ending a nine-month contraction streak, with some respondents citing hopes for improvements in future demand. Others noted that the production increase also reflected a need to reduce backlogs of work, according to the survey. The sub-index measuring manufacturers’ future output expectations rose to a five-month high, while employment expanded in June for the seventh consecutive month.
