Japan manufacturing growth eases in May as costs surge, exports jump

Japan’s factories kept expanding in May, but the pace eased as rising costs and supply-chain strain complicated an otherwise solid export rebound. The final S&P Global Japan Manufacturing PMI slipped to 54.5 from 55.1 in April, still comfortably above the 50 threshold that separates growth from contraction.

Factory output increased for a fifth straight month, though not as quickly as in April, when manufacturing hit its strongest reading since January 2022. New export business jumped at the fastest pace since May 2021, with demand strengthening from the United States and other parts of Asia. That export strength gave manufacturers a lift even as some firms said production gains were also tied to stockpiling, as companies tried to build inventory against shortages and price shocks linked to the Middle East conflict.

The cost side of the story was harsher. Input prices rose at the quickest pace since September 2022, while selling prices climbed at the fastest rate since October 2022, showing how much of the squeeze is being passed through to customers. Supplier delivery times also lengthened sharply as supply-chain disruption filtered through the system, adding another layer of pressure for factories already trying to keep up with overseas orders.

Annabel Fiddes, economics associate director at S&P Global Market Intelligence, said the boost to manufacturing could fade if uncertainty remains elevated and demand weakens, especially if stock-building reverses. That warning matters because the latest numbers suggest part of May’s output strength may have reflected defensive behavior rather than pure end-market demand.

There was at least one sign of better sentiment ahead. Business confidence for the year improved from April, when it had fallen to its lowest level since April 2025. Even so, the broader picture is uneven: Japan’s manufacturing base is still growing, but it is doing so under heavier inflation pressure, with export momentum and geopolitical risk pulling the sector in opposite directions.