Japan’s Manufacturing PMI for December was finalized at 49.6, an improvement from November’s 49.0, indicating a gradual move toward stabilization in the sector.

According to Usamah Bhatti of S&P Global Market Intelligence, the data “painted a picture of a near-stabilization” in manufacturing conditions as declines in both production and new orders softened.

Encouraged by these improvements, firms increased hiring, partly to address existing labor shortages and in anticipation of future demand recovery.

However, price pressures remained elevated, with input costs rising at their fastest pace since August due to higher raw material and labor costs, compounded by Yen’s weakness. To manage these cost burdens, manufacturers passed on higher prices to clients, resulting in the strongest output charge increases in five months.

Full Japan PMI manufacturing final release here.

Japan’s industrial production declined -2.3% mom in November, outperforming expectations of a -3.4% mom drop, but marking the first contraction in three months.

The decrease was driven by weaker exports of semiconductor manufacturing devices and cars, highlighting challenges in external demand. Out of 15 industrial sectors, 11 recorded declines, while 3 sectors reported gains.

Production machinery saw a significant -9.1% drop, largely due to falling exports of chip-making equipment to China and Taiwan, while motor vehicle output fell -4.3%, and fabricated metal products dropped -5.7%.

Despite the slump, the Ministry of Economy, Trade, and Industry maintained its view that industrial production “fluctuates indecisively,” while warning of risks tied to the economic outlooks of the US and China.

Looking ahead, METI’s poll of manufacturers predicts a rebound, with output expected to rise 2.1% in December and an additional 1.3% in January.

Separately, retail sales posted a robust 2.8% yoy gain, exceeding expectations of 1.5%, signaling resilience in domestic demand.

Japan’s Tokyo core CPI (excluding food) rose from 2.2% yoy to 2.4% yoy in December, marking its highest level since August but falling short of expectations for 2.5%. The increase was largely driven by a 13.5% yoy surge in energy prices, reflecting the phase-out of government subsidies for gas and electricity bills. However, when excluding utility costs, inflation pressures appear steady.

Core-core CPI (excluding food and energy) softened to 1.8% yoy from 1.9% yoy, while services inflation edged up slightly from 0.9% to 1.0%. Meanwhile, headline inflation accelerated to 3.0% yoy from 2.6% yoy, with energy and food prices, including rice, contributing significantly to the increase too.

The uptick in Tokyo inflation highlights lingering pressures from rising utility and food costs, which may weigh on consumer spending and deter firms from implementing further price hikes. These factors, coupled with broader signs of economic weakness, could delay BoJ ’s timeline for raising interest rates.

Full Japan’s Tokyo CPI release here.

Japan’s core CPI (excluding food) rose to 2.7% yoy in November, marking the first reacceleration in three months and exceeding market expectations of 2.6% yoy. Core inflation has remained above the BoJ’s 2% target since April 2022, highlighting persistent price pressures. This increase was attributed to reduced government subsidies for utility bills and a sharp rise in rice prices.

Energy prices surged 6.0% yoy, up from October’s 2.3% yoy gain. Within this category, electricity prices jumped 9.9% yoy, and city gas costs climbed 6.4% yoy. Meanwhile, rice prices soared by a staggering 63.6% yoy, the steepest increase since 1971, driven by last year’s unusually hot summer that disrupted production.

Core-core CPI (excluding food and energy) ticked up from 2.3% yoy to 2.4% yoy, while headline CPI rose to 2.9% from October’s 2.3%. Service prices, a key indicator for BOJ as they often reflect wage dynamics, increased 1.5% yoy, unchanged from the prior month.

Full Japan CPI release here.