Japan's manufacturing sector improving, activity shrinking slowly

TOKYO, Japan: Japan's manufacturing sector showed signs of improvement in December, with factory activity contracting at a slower pace compared to previous months, according to a private-sector survey.

The final au Jibun Bank Japan manufacturing purchasing managers' index (PMI) increased to 49.6 in December, marking the softest contraction in three months. This reading was slightly above the 49.5 flash estimate and November's 49.0 but remained below the 50.0 threshold, which indicates growth. It was the sixth consecutive month of contraction.

"The headline reading moved closer to neutrality amid softer reductions in both production and new order intakes," said Usamah Bhatti at S&P Global Market Intelligence, which compiled the survey.

Production continued to shrink for the fourth consecutive month but at a slower rate than in November. Subdued new orders, both domestically and internationally, were cited as the primary reason for the output decline. Some respondents in the survey pointed to ongoing challenges in the semiconductor market as a factor behind weak new orders.

New orders contracted for the 19th consecutive month, reflecting persistent softness in demand across key markets. Despite this, employment levels rebounded in December, reaching their highest point since April. Surveyed firms noted that they were hiring more workers to address labor shortages and prepare for anticipated future demand.

Input prices rose at their fastest pace since August, driven by higher raw material and labor costs. The weak yen also contributed to inflationary pressures. To offset these rising costs, manufacturers increased output prices at the quickest rate in five months.