Prime Highlight
- Japan’s manufacturing and services sectors both expanded in early January, exceeding market expectations and signaling a positive start to 2026.
- Strong domestic demand and recovering exports are driving business confidence, supporting broader economic recovery.
Key Facts
- The S&P Global flash manufacturing PMI rose to 51.5 in January, its highest since August 2024, while the services PMI climbed to 52.8.
- Export orders, especially from the U.S., increased after December weakness, boosting manufacturers’ confidence in early 2026.
Background
Japan’s manufacturing and services sectors started the new year on a positive note, with activity in both areas growing more than expected in early January, according to fresh purchasing managers’ index data released on Friday.
The S&P Global flash Japan manufacturing PMI rose to 51.5 during the first three weeks of January. This marked its highest reading since August 2024 and exceeded market expectations of 50.1. The index also improved from 50.0 in December, signalling a stronger pace of expansion.
The data showed that Japan’s manufacturing sector expanded for a second straight month after spending much of last year in contraction. Survey respondents pointed to improving business confidence, supported by expectations of increased fiscal spending and tax relief under Prime Minister Sanae Takaichi’s government.
Overseas demand is starting to recover. Export orders, especially from the United States, rose after a weak December, boosting confidence among manufacturers. Although the PMI comes from business surveys rather than actual output, it often gives an early sign of economic trends.
The services sector also recorded solid growth in January. The S&P Global flash Japan services PMI climbed to 52.8 from 51.1 in the previous month. The rise showed stronger momentum in consumer-facing industries and highlighted the role of domestic demand in supporting the economy.
Services activity remained a main driver of overall business growth. Strong local demand kept retail, transport and hospitality expanding, making up for earlier weakness in manufacturing during 2025.
Taken together, the data suggest Japan’s economy is gaining traction at the start of the year, with both major sectors moving firmly into expansion territory. The improved PMI readings may also support the Bank of Japan’s view that gradual economic recovery is taking hold, even as policymakers remain cautious about inflation and wage trends.
Analysts said continued strength in domestic demand and a steady recovery in exports will be crucial in maintaining this positive momentum in the months ahead.
