Japan's Factory Activity Contracts Again in August Amid Slump in Export Orders

Tokyo, September 1, 2025 (BNA) – Japan’s factory activity shrank for the second consecutive month in August, reflecting a persistent downturn in new export orders amid weakened global demand, according to the S&P Global Japan Manufacturing Purchasing Managers' Index (PMI).

The index registered 49.7 in August, slightly below the preliminary reading of 49.9 but a modest improvement from July’s 48.9. However, it remained below the 50.0 mark, which separates growth from contraction, indicating a continued slowdown in the manufacturing sector.

While the pace of factory output contraction eased slightly helping improve the headline index the decline in new orders matched July's pace, as subdued market conditions continued to weigh on demand. More concerning was the sharp fall in new export business, which dropped at the fastest rate since March 2024.

“Of particular concern was a steeper drop in new export business, which fell at the sharpest pace in nearly a year-and-a-half,” said Annabel Fiddes, Economics Associate Director at S&P Global Market Intelligence.

The survey highlighted that weaker demand from key international markets, including China, Europe, and the United States, contributed significantly to the export decline. This follows recent government data showing that Japanese exports in July saw their largest drop in over four years, driven largely by declining automobile shipments to the U.S., alongside an unexpectedly sharp drop in industrial production.

In an effort to stabilize trade relations, Tokyo and Washington struck a deal in July that will lower U.S. tariffs on Japanese goods, in return for a $550 billion Japanese investment package aimed at bolstering U.S.-bound commerce.

Despite the policy efforts, analysts suggest Japan’s manufacturing outlook remains under pressure from global economic uncertainty, supply chain disruptions, and currency volatility.