Japan, South Korea Manufacturing PMIs Contract Amid US Tariff Uncertainty

Japan and South Korea's manufacturing sectors have both experienced a contraction in their Purchasing Managers' Index (PMI) for July, signaling a slowdown in economic activity. Japan's manufacturing PMI fell to 48.9, slipping back into the contraction zone, while South Korea's manufacturing sector has been in a state of contraction for six consecutive months. This downturn is largely attributed to the ongoing impact of U.S. tariff policies, which have cast a shadow over the Asian supply chain. The dual pressures of weak demand and declining output have put significant strain on the manufacturing industries of both nations.

The persistent uncertainty surrounding tariffs has led to a challenging environment for manufacturers in both countries. The U.S. tariff policies have disrupted supply chains and created an atmosphere of economic uncertainty, making it difficult for businesses to plan for the future. This has resulted in a decrease in production and a slowdown in economic growth.

Japan's manufacturing PMI dropped from 50.1 in June to 48.9 in July, ending a brief period of stability. The output index fell back into contraction, with the largest decline since March. Companies reported reducing production due to decreased new business volumes. New orders also shrank in July, although at a slightly slower pace than in June. Despite the decline in output and orders, manufacturers continued to increase employment in July, but the rate of job growth slowed to a three-month low. Input cost inflation fell to its lowest level in four and a half years, while output prices rose at the fastest pace in a year, reflecting companies passing on higher costs to customers.

South Korea's manufacturing PMI declined to 48.0 in July, down from 48.7 in June, marking the sixth consecutive month of contraction. The index has been below 50 since February. The data indicates that operating conditions in South Korea's manufacturing sector have deteriorated further. The rates of decline in output and new orders both accelerated compared to June, exacerbated by domestic economic weakness and the impact of U.S. tariff policies. While the decline in new export orders was the smallest in four months, companies reported significant drops in orders from the U.S. and Japan.

Despite recent trade agreements between the U.S. and both Japan and South Korea, which reduced the tariff threat from 25% to 15%, manufacturers' confidence remains fragile and will take time to recover. The focus now shifts to whether these trade agreements will translate into improved customer confidence and sales in the coming months. In South Korea, manufacturers have turned pessimistic about the outlook for the next year, citing concerns over the timing of domestic economic recovery and the continued uncertainty of U.S. tariff policies. In contrast, business confidence in Japan has risen to a six-month high, with expectations that improved demand conditions and reduced trade-related uncertainty will support future growth.