In March, Japan's manufacturing sector faced a deeper decline in factory activity due to weakening demand and uncertainties stemming from the escalating U.S. trade tensions. According to the final au Jibun Bank Japan Manufacturing Purchasing Managers' Index (PMI), which dropped to 48.4 from 49.0 in February, marking a 12-month low, this decline persisted for the ninth consecutive month below the 50.0 threshold that denotes contraction.

The survey indicated that both output and new orders further decreased, reflecting subdued demand from both domestic and international markets. Output fell for the seventh month in a row, with the sharpest decline in a year, while new orders shrank continuously for 22 months. Additionally, new export business also declined marginally, attributed to sluggish demand from major markets like China and the United States.

Although companies were more positive about future demand compared to February, the recovery was sluggish due to uncertainties surrounding the global economic landscape and trade conditions. The recent announcement by U.S. President Donald Trump about imposing a 25% tariff on imported cars starting April 3 could have significant implications for Japan's manufacturing sector and overall economy.

On a positive note, employment within these companies increased at the quickest rate in three months, with some firms hiring more workers to address vacancies or in anticipation of potential future demand growth. However, companies faced significant cost pressures, particularly due to rising expenses for labor, materials, energy, and transportation, further exacerbated by unfavorable exchange rates.

The survey highlighted notable increases in both input costs and selling prices, pointing towards acute inflationary pressures persisting across the sector.