Japan's factory growth slows as cost pressures surge, PMI shows

TOKYO, June 1 (Reuters) - Japan's manufacturing sector expanded in May at a slightly slower pace, as record export order growth was offset by surging costs driven by the Middle East war and inflated output from stockpiling, a private survey showed on Monday.

* The final S&P Global Japan Manufacturing Purchasing Managers' Index (PMI) stood at 54.5 in May, down from April's more than four-year high of 55.1 and matched the flash reading. A PMI above 50.0 indicates expansion, while below that level signals contraction.

* Among PMI sub-indexes, factory output rose for the fifth consecutive month, though the rate of expansion slowed from April. Some respondents attributed the production gains not just to increased sales but also to efforts to expand inventory levels.

* "The current period of expansion is being partly driven by stock building among manufacturers and their clients, as companies looked to safeguard against product shortages and mitigate price risks driven by the war in the Middle East," said Annabel Fiddes, Economics Associate Director at S&P Global Market Intelligence.

* New orders also expanded at a slower rate, but new export business increased at the fastest pace since May 2021, as global demand improved particularly across the U.S. and other parts of Asia.

* Input costs surged at the quickest pace since September 2022, driven by higher prices for raw materials amid the Iran war. Selling prices also marked the highest since October 2022.

* Business confidence for the year ahead improved from April, when it marked the lowest since the tariff-hit in April 2025. "Although manufacturers generally anticipate reaping further gains from strong growth in areas such as AI and electronics, surging costs and subdued global economic conditions could act as headwinds in the months ahead," Fiddes said. (Reporting by Kantaro Komiya; Editing by Shri Navaratnam)