Japanese manufacturing activity continued to struggle, contracting for the eighth consecutive month in February 2025, as indicated by the preliminary purchasing managers index (PMI) data.

The PMI for February was reported at 48.9, which is slightly above January's figure of 48.7 but still below the forecasted 49.0, signaling ongoing contraction in the sector.

A PMI reading below 50 is indicative of a contraction in manufacturing activity, underscoring the challenges faced by this sector.

While the decline in output and new orders slowed during February, manufacturers began reducing employment for the first time since November 2024, reflecting the tough economic environment.

According to Usamah Bhatti, an economist at S&P Global Market Intelligence, factors contributing to the negative sentiment include labor shortages, persistent inflation, and economic malaise within Japan's domestic economy.

Sentiment regarding the 12-month outlook for output fell to its lowest level since June 2020, highlighting increasing concerns among manufacturers.

In contrast to the struggles in manufacturing, the composite PMI, which combines manufacturing and services data, increased to 51.6 in February from 51.1 in January, suggesting overall economic activity remains in positive territory.

The services sector showed signs of improvement, with its PMI rising to 53.1 in February from 53.0 in January, indicating expansion driven by increased demand and company expansion plans.

Service providers reported that higher activity and sales were key drivers of this expansion, contrasting with the challenges faced by the manufacturing sector.