Japan's factory activity shrinks, US polices dog outlook, PMI shows

Japan's factory activity shrank for an eighth consecutive month in February, while worries about U.S. protectionist trade policies weighed on firms' outlook, a private-sector survey showed on Monday.

The final au Jibun Bank Japan manufacturing purchasing managers' index (PMI) rose slightly to 49.0 from 48.7 in January, indicating the softest contraction in three months.

The index was slightly higher than 48.9 in the flash reading but stayed below the 50.0 threshold that separates growth from contraction for the eighth straight month.

"Firms often mentioned weakness in domestic and global manufacturing demand and confidence," said Usamah Bhatti at S&P Global Market Intelligence, which compiled the survey.

Firms cited muted demand conditions particularly from the United States, Europe and China, according to the survey.

The key subindex of output shrank for the sixth straight month in February on softer global demand but the pace of contraction eased from January.

New orders extended contraction, staying below the 50.0 threshold since mid-2023, with firms citing weak client confidence in Japan and the international market.

Japanese manufacturers stayed positive about their business outlook in February, though the level of optimism eased sharply from the previous month. Their expectations for the year-ahead outlook for output softened to the lowest since June 2020, the survey found.

U.S. President Donald Trump's tariff threat against key trading partners have stoked uncertainty for investors and policymakers as an escalating trade war could affect the global economy.

"Firms highlighted the potential downside risks of U.S. protectionist trade policies and a slower-than-anticipated economic recovery," said Bhatti.

Employment levels stagnated in February as a rise in staffing levels due to filling full-time vacancies was mostly offset by the non-replacement of voluntary leavers and retirements.

Input prices rose, driven by higher costs for raw materials, labour, and utilities as well as exchange rate fluctuations. These higher operating costs prompted manufacturers to increase their selling prices at a faster pace.