Japan factory activity returns to growth after 11-month contraction, PMI shows

TOKYO (Reuters) -Japan’s manufacturing activity returned to growth in June after nearly a year of contraction, but demand conditions remain murky due to worries over U.S. tariffs and the global economic outlook, a private-sector survey showed on Monday.

Meanwhile, the service sector’s expansion accelerated, pushing overall business activity to a four-month high, offering a counterbalance to the export-reliant factory sector amid diminished prospects for an early Japan-U.S. trade deal.

The au Jibun Bank flash Japan manufacturing purchasing managers’ index (PMI) rose to 50.4 from May’s final 49.4, ending 11 months of readings below the 50.0 threshold that indicate contraction.

Among sub-indexes, factory output and stocks of purchases rebounded to growth from multi-month contraction, driving up the headline manufacturing PMI.

However, new orders for manufactured goods, including from overseas customers, continued to decline, the survey showed.

“Companies indicated that U.S. tariffs and lingering uncertainty over the global trade outlook continued to inhibit customer demand,” said Annabel Fiddes, economics associate director at S&P Global Market Intelligence, which compiled the survey.

Manufacturers’ confidence about their year-ahead output remained mostly unchanged from May.

By contrast, the au Jibun Bank flash services PMI increased to 51.5 in June from 51.0 in May, thanks to new business growth, although growth for export businesses slowed slightly.

Combining both manufacturing and service activity, the au Jibun Bank flash Japan composite PMI rose to 51.4 in June from May’s 50.2, reaching its highest level since February.

Cost pressures across the private sector eased in June, with input prices rising at the slowest rate in 15 months, though output price inflation accelerated to a four-month high, the composite data showed.

Employment was another bright spot, with workforce numbers increasing at the quickest pace in 11 months across both manufacturing and services sectors.

(Reporting by Kantaro Komiya; Editing by Sam Holmes)