Japan’s Jibun Bank Manufacturing PMI for March 2025 recorded a preliminary value of 48.3, marking its sharpest decline in a year from 49.0. The Services PMI fell to 49.5 from 53.7, while the Composite PMI dropped to 48.5 from 52.0.
The March data indicated a downturn in private sector activity for the first time since last October. There was a slight decrease in composite new business, with firms experiencing strong inflationary pressures that dampened sales and led to customer hesitance in ordering.
Slowdown In New Business Growth
Service companies saw a notable slowdown in new business growth, while goods producers experienced solid declines. Although new export orders increased slightly overall, this was due to a robust rise in services offsetting a decrease in demand for manufactured goods.
Cost pressures remained high, with input costs rising sharply across both sectors, resulting in increased selling prices. Confidence in future business activity fell to its lowest point since August 2020.
Ongoing challenges faced by Japan’s economy include inflation, labour shortages, an ageing population, reduced client spending, and growing uncertainty in international trade. Up to this point, economic data had shown improvements, making the current PMIs concerning.
These figures paint a clear picture of economic weakening, particularly in private sector activity, which had previously shown resilience. The drop in manufacturing PMI implies a contraction in factory activity at a pace not seen in a year. A reading below 50 signals a decline, and at 48.3, the fall suggests worsening conditions. This trend extends beyond goods production, with the service sector also slipping into contraction territory for the first time in months. The broader economy mirrored this movement, as reflected in the composite PMI’s retreat to 48.5.
New business inflows barely held steady, with a slight contraction placing further strain on company revenues. Inflationary pressures are not just limiting demand but also affecting purchasing decisions. Customers seem hesitant to place new orders, likely due to higher prices and economic uncertainty. This has hampered sales growth, a potential red flag for corporate earnings in the coming months.
Rising Cost Pressures
The divergence between service providers and goods producers adds more depth to the situation. While services had previously maintained stability, their slowdown now suggests that household and corporate demand are softening across the board. The one offsetting factor came from exports within the service sector, which managed to expand. However, the downturn in foreign orders for manufactured goods offset these gains. Domestic and international conditions both appear less stable, affecting market sentiment.
Another challenge stems from rising input costs. Price pressures have remained elevated, with businesses encountering higher production expenses that are pushing them to raise selling prices. These price hikes might be necessary to protect margins but could also reduce demand further. If firms struggle to pass costs onto consumers, profit expectations could weaken. Adding to the pressure, confidence among business leaders has now reached its lowest point in nearly five years. Plans for expansion and investment may be adjusted accordingly.
Japan’s broader economic challenges are well-known. Inflation persists, labour shortages remain unresolved, and an ageing population limits workforce growth. Consumer spending is under strain, and external risks in trade continue to rise. Until now, recent economic indicators had provided a sense of improving conditions, making this unexpected downturn harder to ignore.
