Japan's factory activity returns to growth after seven months, PMI shows

TOKYO, Jan 23 (Reuters) - Japan's manufacturing activity expanded in January for the first time in seven months, buoyed by the biggest rise in new export orders in more than four years, a private-sector survey showed.

The S&P Global flash Japan Manufacturing Purchasing Managers' Index (PMI) increased to ?51.5 in January from December's final reading of 50.0, marking a return to expansionary territory for the first ?time since June 2025.

Readings above 50.0 indicate growth in activity, while ?those below point to a contraction.

Among key sub-indexes, both factory ?output and new ?orders ended their contraction streaks in January. New export orders, in particular, climbed for the first time ?in four years and at the fastest rate ?since November 2021, underscoring improved overseas demand for Japanese goods.

Japan's exports have been rising for four consecutive months to December, government ?figures showed on Thursday, thanks to resilient ?data-centre-related demand ?and despite falling shipments to the United States.

The flash Japan services PMI also improved in January, climbing to 53.4 from 51.6 in December, ?marking the steepest increase in services activity since last July. This bolstered the flash composite PMI, which rose to 52.8 from 51.1 in December.

"Growing customer demand led to greater pressure on capacity, however, as outstanding business rose at the fastest rate since composite data were first available in late-2007," said Annabel Fiddes, Economics ?Associate ?Director at S&P Global Market Intelligence.

"This has fed through to increased staff recruitment, with employment across Japan rising at the steepest rate since ?April 2019."

Looking ahead, both manufacturers and service firms forecast growth in future output, although optimism slightly subsided from December across sectors. Firms cited "concerns around rising costs, global economic uncertainty, labour shortages and an ageing population," Fiddes said.

Input price inflation for manufacturers hit a nine-month high, while that for service providers fell from December. Both sectors raised prices they charge to ?customers faster in January.

The Bank of Japan on Friday is expected to raise its growth forecast and signal its readiness for the next rate hike, as recent yen falls and solid wage ?outlook keep policymakers alert to containing inflationary pressure. (Reporting by Kantaro Komiya; Editing by Shri Navaratnam)