Japan's manufacturing growth slows down, Middle East conflict brings pressure

Investing.com – Based on data released on Wednesday, Japan’s manufacturing sector saw its March expansion pace slow down, with S&P Global’s Japan Manufacturing Purchasing Managers’ Index falling from a 45-month high of 53.0 in February to 51.6.

The March reading marks the second-strongest performance since July 2022, even as it shows a more moderate improvement pace. The data was collected from March 11 to 24.

Factory output continued to rise for the third straight month, although the rate of growth slowed compared with February. This expansion pace was the second-fastest since April 2022. New orders also increased for the third straight month, as companies said demand rose for semiconductors, artificial intelligence technology, and auto products. However, the growth rate was the slowest in this period.

Manufacturing employment remained on an upward trend, with companies saying they are working to expand capacity and address labor shortages. The pace of employment growth was the slowest so far this year through 2026. Unfinished business rose at the most significant rate since June 2022.

Input costs rose at the fastest pace in 19 months, and manufacturers linked this increase to the war in the Middle East. Rising raw material, energy, and labor costs, along with a weaker yen, intensified pricing pressures. Selling prices increased at the second-fastest pace since June 2024.

Supply chain performance deteriorated, even though the pace slowed compared with February. Companies reported product shortages, especially semiconductors.

Confidence in the outlook one year ahead weakened compared with February’s recent peak. Companies were optimistic about demand for artificial intelligence, semiconductors, and the defense industry, but also cautious about the Middle East conflict.

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