Japan’s private sector growth slowed in May as momentum weakened across both manufacturing and services activity, though the economy continued expanding overall thanks to resilient factory output. Flash Japan Composite PMI Output Index eased from 52.2 to 51.1, while Services PMI Business Activity Index slowed sharply from 51.0 to 50.0, effectively signaling stagnation after 13 consecutive months of expansion. Manufacturing PMI also eased modestly from 55.1 to 54.5, while Manufacturing Output Index slipped from 55.1 to 54.1.
According to S&P Global’s Annabel Fiddes, the latest expansion was “driven entirely by manufacturing,” with factory activity continuing to benefit partly from stockpiling efforts linked to disruptions caused by the Middle East conflict. Firms reportedly increased inventories amid concerns over product availability and rising prices. Even with the moderation in May, manufacturing output growth remained close to April’s strongest pace in more than 12 years.
At the same time, inflation pressures intensified further. Fiddes warned that overall business costs rose at the fastest pace in three-and-a-half years, while selling price inflation accelerated to a fresh survey high. The combination of rising costs and softening demand is beginning to create a more challenging backdrop for Japanese firms. While the PMI data still point to a relatively solid manufacturing-led expansion in the second quarter, the loss of momentum in May reinforces concerns that persistent energy-related inflation pressures could eventually weigh more heavily on confidence, domestic demand, and broader economic growth.
| Indicator | Previous | Latest |
|---|---|---|
| Composite PMI Output Index | 52.2 | 51.1 |
| Services PMI Business Activity Index | 51.0 | 50.0 |
| Manufacturing PMI | 55.1 | 54.5 |
| Manufacturing PMI Output Index | 55.1 | 54.1 |
