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Japan's June PMI Caps Best Quarterly Performance Since First Quarter of 2014

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Japan's June PMI Caps Best Quarterly Performance Since First Quarter of 2014

Japan's manufacturing activity rose for the sixth straight month in June as customer demand and sales grew at their strongest pace in nearly four and a half years.

The headline S&P Global Japan Manufacturing Purchasing Managers' Index (PMI) climbed to 54.8 from 54.5 in May. This marks the second-fastest pace of expansion since January 2022, according to a press release on Wednesday.

On a quarterly basis, the data revealed that conditions during the second quarter of the year soared to their highest levels since the first quarter of 2014.

The broad improvement in the manufacturing output was attributed to new order growth and sales that booked their strongest since 2022.

Annabel Fiddes, S&P Global Market Intelligence's economics associate director, noted that strong demand for artificial intelligence-related products contributed heavily to the sruge in total new orders.

However, supplier delivery times slowed down substantially during the month. Ongoing tensions in the Middle East have triggered shipping delays, resulting in widespread material shortages.

Firms continued to draw down existing inventories to meet demand as stocks of finished goods fell for the 22nd consecutive month, S&P Global said.

Selling prices were raised as a direct result of profit margin pressures, while manufacturers expanded their payrolls to accommodate larger order backlogs. This brought sector employment growth to its strongest pace since April 2018, matching a peak last seen in January 2022.

The manufacturing momentum aligns with recent official labor data. The Ministry of Internal Affairs and Communications reported that Japan's unemployment rate held flat at 2.5%. While the number of jobless individuals ticked up by 20,000 to 1.85 million year over year, the broader labor market remained strong, with the total number of employed persons expanding by 520,000 to reach 68.9 million.

Meanwhile, manufacturers remain confident that production output will continue to rise over the coming year, buoyed by the structural demand for AI chips and infrastructure investments.

However, the central bank warned that the country's inflation could consistently exceed its 2% target as oil and energy prices rise. Bank of Japan Governor Kazuo Ueda recently indicated that the board is leaning toward continued interest rate hikes to counter these inflationary pressures, as Middle East transit security remains volatile.

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