Manufacturing activity in Japan expanded for the first time in 13 months in June.

Japan's Manufacturing PMI Rises Above the Threshold

A private survey released on What does foreign exchange doTuesday (July 1) showed that Japan's manufacturing activity in June expanded for the first time since May 2023, indicating that some manufacturers are beginning to recover after a prolonged slump. The final reading of the au Jibun Bank's Manufacturing Purchasing Managers' Index (PMI) for June climbed to 50.1 from 49.4 in May, slightly above the 50 threshold that separates expansion from contraction.

This data marks Japan's manufacturing sector entering a mild expansion after 13 months of contraction; however, market analysts believe that the recovery momentum is still fragile, requiring more support from external and domestic demand to sustain improvement.

Output Increase Ends Nine Months of Decline

Sub-indexes showed that Japan's industrial output grew in June, ending a nine-month streak of declines. Some surveyed companies noted signs of improvement in domestic production demand recently, with some sectors cautiously optimistic about future order growth.

Other companies reported that the surge in output was partly due to the need to clear backlogged orders, indicating that the production recovery is still in the early stages and not entirely driven by new demand.

New Orders Continue to Be Pressured by Tariff Uncertainty

Despite the increase in output, the environment for new orders in Japan's manufacturing sector remains weak. The survey indicated high uncertainty in global supply chains and export demand due to unclear prospects regarding U.S. tariffs, causing businesses to be cautious about taking new orders and some overseas clients to delay order placements.

Analysts pointed out that the U.S. threat of new tariffs on some Asian countries poses potential cost increase pressures on Japanese automotive, electronics, and machinery parts exports, dampening companies' short-term order growth momentum.

Businesses Show Divergence in Future Demand Expectations

Regarding business confidence, some respondents expressed optimism about future demand improvements as the global inventory cycle nears its end, believing that with domestic policy support and a gradual recovery of supply chains, exports may rebound in the latter half of the year.

However, another group of companies remains cautious about the global economic outlook, particularly due to geopolitical conflicts, high raw material costs, and the slow recovery of demand in major overseas markets, raising concerns that the recovery pace may be disrupted.

Policy Support and Export Recovery are Key

To address the challenges of the manufacturing recovery, the Japanese government has recently rolled out incentives for investment in the semiconductor and green manufacturing sectors. Some local governments also offer low-interest loans and subsidies to small and medium-sized manufacturing enterprises to stabilize production and employment.

Moreover, the warming global economic demand and the restoration of regional supply chains will be crucial for the sustained revival of Japan's manufacturing sector. If global major market economies stabilize and tariff environments clarify, Japanese export enterprises could anticipate a cycle of order recovery, providing more robust support for manufacturing resurgence.

Monitoring Future Export Data and Global Demand Trends

In the coming weeks, markets will closely monitor Japan's export orders, industrial production, and domestic consumption trends to ascertain the sustainability of the manufacturing upturn. Simultaneously, policies and economic performance in major markets such as the United States, Europe, and China will directly influence Japan's manufacturing environment and the yen's exchange rate trend.

As Japan's manufacturing shows signs of recovery after prolonged weakness, whether it can firmly remain above the threshold will be a crucial indicator for assessing the resilience of its economic recovery.

Risk Warning and Disclaimer

The market carries risks, and investment should be cautious. This article does not constitute personal investment advice and has not taken into account individual users' specific investment goals, financial situations, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their particular circumstances. Investing based on this is at one's own responsibility.

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