Insights 
VT 
Japan’s Jibun Bank PMI Manufacturing for May 2025 was 49.4, marking the 11th month of sector contraction. This final figure was an improvement from the previous 48.7 and preliminary 49.0 figures. A survey by S&P Global suggested a move towards stabilisation with slower declines and increased employment.
In May, manufacturing conditions softened with a milder output downturn similar to April’s. Despite ongoing declines in output and new orders, the contraction’s pace eased, with subdued global demand attributed to U.S. tariffs and client caution impacting production and orders.
Growing Optimism Among Manufacturers
Manufacturers showed growing confidence, with optimism about future output and a faster rate of increase in staff levels. These changes were made as firms prepared for a potential global demand recovery.
The data indicates a stabilising trend for Japan’s industrial sector despite global trade challenges. In comparison, South Korea’s May Manufacturing PMI was 47.7, Taiwan’s 48.6, and Vietnam’s 49.8, revealing regional variations in manufacturing performance.
The existing summary gives us a snapshot of Japan’s manufacturing conditions in May 2025. Even though the sector continued to contract, the drop was less severe than it had been in the previous month. At 49.4, the final PMI reading is still below the neutral 50 mark, meaning activity remains in negative territory. However, the shift from preliminary readings—improving from 49.0 and previously 48.7—hints that the downturn may be losing steam. S&P Global’s survey suggests that while businesses are still cautious, some are beginning to feel that the worst might be passing. Employment rising at a faster pace aligns with this steady, if tentative, turn in mood.
What is particularly important here is not just the headline figure but the direction of travel across the components. Output and new orders are still falling, but not as fast as before. Fewer firms are cutting back, and more appear to be hiring. This doesn’t point to a recovery yet, but it does suggest that the rate of contraction is slowing. Trade tensions, especially linked to tariff pressures from the U.S., are still weighing on output. Clients, both domestic and overseas, remain wary. As a result, new orders are not growing and production is still contracting.
Future Outlook And Market Implications
However, manufacturers are clearly planning with the medium term in mind. They’ve become more optimistic about future conditions, boosting staffing now in case demand picks up later in the year. That level of readiness shows that businesses believe low levels of demand may not persist. This contrasts with regional peers, where South Korea, Taiwan, and Vietnam all posted lower PMI readings in the same month, further highlighting that Japan’s situation, although challenging, might be turning a corner with slightly firmer footing.
For those of us tracking short-term volatility in markets tied to industrial output—particularly those exposed to cyclical sectors—this moderation in the pace of decline should not be overlooked. Even without a return to expansion, reduced downside momentum shifts pricing pressure, particularly in options structures linked to exports or input-based sectors like machinery and chemicals. With hiring up and expectations for output ticking higher, implied volatility on downside hedges may begin to fade. Positions built on extended weakness should now carry tighter stops, especially on the short side.
As we approach the next data releases, watching the industrial input gauges and export orders may give clearer signals. Inventory levels and supplier delivery times could also influence sentiment quickly, especially in leveraged trades. Payroll expansions and firm output plans, whilst not a guarantee, often precede more distinct turns in purchasing activity. It’s worth keeping in mind that if overseas demand even mildly rebounds, local manufacturers will be set up to meet it more swiftly than their neighbours. We should adjust duration where necessary to reflect this readiness.
While current figures remain shy of growth territory, the direction of movement matters. Contracts built from assumptions of an extended slump may need reassessing in light of growing business confidence and slower declines. Timing remains tight, but we’re watching for sustained momentum over the coming prints.
