Japan’s manufacturing sector ended the final month of 2025 still in contraction, but at a slower pace than in November, according to a widely followed private-sector survey released on December 16. The S&P Global flash Manufacturing Purchasing Managers’ Index (PMI) climbed to 49.7 in December from 48.7 in November, marking the sixth consecutive month below the 50.0 threshold that separates expansion from contraction.
While the headline PMI reading remains below growth territory, analysts say the modest improvement suggests that the pace of decline in factory activity may be stabilising. The survey indicated that overall demand for goods weakened at its slowest rate in roughly 18 months, hinting at tentative signs of resilience even as production and sales continued to contract.
In contrast to manufacturing, Japan’s services sector lost a degree of momentum in December. The services PMI edged down to 52.5 from 53.2 in November, though it remained comfortably above the 50 mark that signals expansion. When manufacturing and services are combined, the composite PMI slipped to 51.5 from 52.0, pointing to continued overall expansion in private-sector activity at the end of the year.
The report also highlighted some positive employment trends, with total jobs in both sectors increasing at the fastest rate since May 2024. Outstanding business an indicator of future activity expanded at its quickest pace in two and a half years. However, inflationary pressures intensified in December, with firms in both manufacturing and services raising selling prices at the fastest pace in eight months.
Business confidence heading into 2026 remained generally positive but showed signs of softening, particularly among manufacturers. Firms cited concerns over the global economic outlook, demographic challenges and rising costs as factors weighing on future expectations. A quarterly survey from the Bank of Japan also showed that while business sentiment among large manufacturers hit a four-year high, many companies expressed caution about conditions three months ahead, citing worries over higher U.S. tariffs and weak consumer demand.
The latest PMI data arrives as Japan’s economy continues to balance headwinds in its industrial heartland with stronger performance in other areas. Although manufacturing has struggled with subdued demand and cost pressures throughout much of 2025, softer rates of contraction and stabilising order books offer a sliver of optimism as the world’s third-largest economy moves into the new year.
