Daily Briefing 4/23/25
Flash PMI (Jibun)
Japan’s Composite PMI rose to 51.1 in April 2025 from 48.9 in March, indicating a modest return to expansion. The uptick was driven entirely by services, where the PMI climbed to 52.2 (from 50.0). Manufacturing remained weak, with its PMI at 48.5 (up just 0.1 pts), marking ten consecutive months in contraction. New orders and employment grew across the economy, but foreign demand contracted again. Input costs surged at the fastest pace in two years, and selling prices followed. Yet business sentiment slumped to its lowest since mid-2020 due to global uncertainty, trade tensions, and cost pressures including wage gains that are difficult to sustain.
Interpretation
Despite April’s rise in Japan’s composite PMI to 51.1, up from a recessionary 48.9 in March, the underlying figures reveal more deterioration than recovery. The improvement was entirely services-led: the services PMI rose 2.2 points to 52.2, reversing March’s flatline, while manufacturing eked out only a 0.1-point gain to 48.5, remaining firmly in contraction for the tenth straight month.
In services, new orders posted the strongest gain in three months, and employment rose at the fastest pace since January, but we’ve seen this several times before from the index which drops sharply and then only partly retraces while overall traveling lower. To that end, foreign demand slowed, and business sentiment dropped to its lowest since January 2021. This collapse in confidence - despite a nominal expansion - suggests that firms are reacting to a worsening macro environment, not positioning for recovery.
The manufacturing sector remains the weakest link. New orders fell at the fastest pace since February 2024, and export orders declined even more sharply. This is a clear signal that Japan’s industrial economy continues to suffer from weakening global trade flows. Inventories and purchasing activity were both reduced in response - typical signs of cautious or defensive behavior from firms expecting further weakness.
On pricing, input costs rose at the sharpest rate in two years, especially in services, where firms face intensifying wage and energy pressures. While output prices also increased, the margin between input and output costs suggests a squeeze is forming - particularly in manufacturing, where output price “inflation” dropped to its weakest since June 2021 (weak demand everywhere).
More broadly, forward-looking indicators have deteriorated substantially. Composite business sentiment is now at its lowest since August 2020 (!), highlighting how fears of US tariffs and a global growth downturn are converging. The backdrop of an aging population and shrinking labor pool further amplifies the downside risks.
