Japan’s Jibun Bank PMI Manufacturing for May 2025 stood at 49.4, marking the 11th consecutive month of contraction in the sector. This final reading improved from April’s 48.7 and a preliminary figure of 49.0. A survey by S&P Global indicates a shift toward stabilisation, with slower declines and increased hiring. In May, manufacturing conditions showed a slight easing in output decline, similar to April’s trends. Output and new orders continued to drop, but the pace of contraction slowed. This slowdown is linked to weak global demand, influenced by U.S. tariffs and cautious clients affecting production and orders. Manufacturers expressed growing confidence, showing optimism about future output and a quicker increase in staffing. These changes suggest that firms are preparing for a potential recovery in global demand. The data reflects a stabilising trend for Japan’s industrial sector, even amid global trade challenges. In comparison, South Korea’s May Manufacturing PMI was 47.7, Taiwan’s was 48.6, and Vietnam’s was 49.8, revealing differences in regional manufacturing performance. This summary provides insight into Japan’s manufacturing landscape in May 2025. Although the sector remains in contraction, the drop is less severe than last month. With a PMI of 49.4, below the neutral 50 mark, activity is still in negative territory. However, the improvement from previous readings of 48.7 and 49.0 suggests the downturn may be easing. The S&P Global survey indicates businesses are still cautious, but some feel the worst may be over. Rising employment aligns with this cautious optimism. The headline figure is important, but the trend across various components matters too. Output and new orders are still declining, but the pace is slowing. More firms are hiring while fewer cut back. Though this doesn’t signal recovery, it indicates that the rate of contraction is easing. Trade tensions, particularly U.S. tariffs, continue to affect output, and both domestic and international clients remain cautious, leading to stagnant new orders and contracting production. Manufacturers are planning for the medium term, showing increased optimism for future conditions. They’re boosting staffing in anticipation of a potential demand pickup later in the year, suggesting that low demand levels may not last long. This stands in contrast to regional counterparts, as South Korea, Taiwan, and Vietnam reported lower PMI readings for the same month, highlighting that Japan’s situation, while tough, may be starting to improve. For those monitoring short-term market swings tied to industrial output, especially in cyclical sectors, this slowdown in the pace of decline is significant. Even without returning to growth, the reduced negative momentum can shift pricing pressures, especially in sectors like machinery and chemicals that are linked to exports. As hiring increases and expectations for rising output grow, the implied volatility for downside hedges may begin to wane. Positions based on prolonged weakness might need tighter stops, particularly on the short side. As we approach the next data releases, it will be important to monitor indicators related to industrial input and export orders. Inventory levels and supplier delivery times could also quickly affect sentiment, especially in leveraged trades. While payroll increases and firm output plans don’t guarantee changes, they often precede a noticeable shift in purchasing activity. If overseas demand rebounds even slightly, local manufacturers will likely be prepared to respond faster than their competitors. Adjusting strategies to reflect this readiness may be beneficial. While current figures are still below growth territory, the direction of change is crucial. Contracts based on expectations of a prolonged downturn may require reassessment in light of rising business confidence and slower declines. Although timing is tight, we will remain vigilant for sustained momentum in upcoming data releases.

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