Economic Buzz: Japan?s business growth slows as demand softens and cost pressures rise

Japan?s private sector continued to grow in March 2026, but at a slower pace, according to the latest S&P Global Flash PMI data. The Composite Output Index fell to 52.5 from 53.9 in February, marking the weakest expansion in three months, though still remaining above the 50 level that indicates growth.

Both manufacturing and services recorded slower activity. Growth in new orders also eased, with overall demand rising only slightly and at the weakest pace in three months. Export demand remained positive but softened, particularly for goods, while services exports saw only a modest increase.

Companies continued to hire, extending a two-and-a-half-year period of job creation. However, employment growth slowed to a four-month low as firms took a more cautious approach.

Cost pressures increased sharply, with input prices rising at the fastest rate in nearly a year. Businesses linked this to higher energy and material costs, partly due to ongoing disruptions from the Middle East conflict. Despite rising costs, companies raised their selling prices at a slower pace, especially in the services sector.

Business confidence for the year ahead weakened to an 11-month low, reflecting uncertainty around global conditions, although manufacturers remained relatively optimistic about future demand.

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