Rising Costs Slow Japan’s Manufacturing Growth in May Despite Record Export Orders

Japan’s manufacturing sector slowed in May as rising costs, linked in part to the war in the Middle East, offset a record increase in export orders, according to a report cited by Asharq Al-Awsat. The data point to an industry still expanding, but under growing pressure from higher input prices and a weaker external environment.

The report said factory growth eased only slightly, suggesting that demand remains resilient even as producers face more expensive materials and logistics. Export orders reached a record level, helping support output, but the sharp rise in costs limited the overall pace of improvement.

Those cost pressures matter because manufacturing is a key driver of Japan’s broader economy and a major source of export earnings. If higher expenses continue to squeeze margins, companies may become more cautious about investment, hiring, and production plans.

The same outlet also reported comments from former Bank of Japan board member Makoto Sakurai, who warned on Monday that Japan risks repeating a policy mistake that contributed to decades of stagnation unless the central bank raises interest rates early. His warning reflects concern that keeping borrowing costs too low for too long could leave the economy vulnerable if inflation and imported costs stay elevated.

Together, the manufacturing data and the rate debate underscore a central challenge for policymakers: supporting growth without letting rising prices erode business confidence. The Bank of Japan has been trying to normalize policy gradually, but the latest signals from factories suggest the timing of further rate changes could become more contentious.

For companies, the immediate issue is whether strong export demand can continue to outweigh higher costs. For policymakers, the question is whether Japan’s economy can sustain expansion while avoiding the kind of long period of weakness that Sakurai says the country is at risk of revisiting.