Japan’s Factory Sector Slips for a Second Month, Even as Services Hold Up

Japan's manufacturing landscape remained under duress in August 2025, marking the second straight month of contraction. Although the S&P Global flash manufacturing PMI ticked up slightly to 49.9 from 48.9 in July, it still fell below the 50-point mark that distinguishes growth from shrinkage.
While factory output managed a modest comeback, confidence is hampered by continuing declines in new orders—particularly exports, which dropped at their fastest pace in 17 months. July’s export figures compounded the concerns, showing the steepest drop since early 2021. Although a fresh trade deal with the U.S. reducing tariffs to 15% offers some relief, manufacturers remained wary in their outlook.
Cost pressures intensified as input expenses rose, while the prices manufacturers could charge hit a four-year low—squeezing profit margins noticeably. In contrast, the services sector maintained its expansion, even if growth slowed. The combined manufacturing-services composite PMI climbed to 51.9, posting its strongest gain in half a year.