This detailed analysis examines the May 2025 Industrial Production Index published by the Ministry of Economy, Trade and Industry, providing sector-by-sector insights into Japanese manufacturing trends and future outlook.
May's industrial production showed a seasonally adjusted index of 101.8, rising 0.5% from the previous month, marking the first increase in two months. The baseline assessment remains unchanged at "fluctuating indecisively," indicating that a clear recovery trend has not yet been established. The January-May trajectory shows an unstable pattern: decline in January, rises in February and March, decline in April, and rise in May. While corporate production plans forecast an increase in June and decline in July, considering the tendency for actual results to fall below plans, the indecisive fluctuation is expected to continue.
Sector performance shows mixed results, with 9 of 15 industries rising, 5 declining, and 1 remaining flat. Production machinery industry contributed most to the increase, driven by metal molds and excavating machinery. General-purpose and business machinery ranked second in contribution, with bearings and compressors performing well. The automobile industry ranked third, with increased production of standard passenger cars and drive transmission/control components. Transport equipment industry showed the largest decline, with significant reductions in aircraft engines and airframe components.
Shipments demonstrated solid performance with the seasonally adjusted index reaching 102.0 in May, up 2.2% from the previous month, marking the second consecutive monthly increase. The automobile industry made the largest contribution through strong exports of standard passenger cars and automotive engines. By goods category, capital goods (excluding transport equipment) surged 7.7% month-on-month, reflecting strong capital investment demand. Durable consumer goods rose 2.3% and non-durable consumer goods increased 1.2%, showing solid domestic demand. Producer goods declined 0.7% and construction goods fell 0.2%, indicating weakness in materials and construction-related sectors.
Inventory and inventory ratio improvements are progressing. The inventory index reached 99.4, down 1.9% from the previous month for the second consecutive decline, indicating advancing inventory adjustments. The inventory ratio index fell to 104.7, down 1.9% for the second straight month. The electrical and information communication machinery industry showed notable inventory reductions in lithium-ion batteries and other products. Eleven industries reduced inventories, demonstrating effective proactive inventory reduction efforts. However, petroleum and coal products saw increases in gasoline and jet fuel inventories.
The inventory cycle has transitioned from the "inventory accumulation phase" in Q1 2025 to the "unintended inventory reduction phase" in Q2 (preliminary). Following the inventory adjustment phase that began in Q3 2023, the cycle has entered a new stage. Active inventory reduction effects are becoming apparent in some industries, showing signs of improving supply-demand balance. However, frequent phase transitions indicate that a stable recovery trajectory has not yet been established.
Risk factors and areas requiring attention include global economic trends, particularly China's economic slowdown and U.S. interest rate movements affecting Japan's production activities. The continuation of semiconductor and electronic component inventory adjustments creates uncertainty about demand recovery timing. High raw material prices and yen depreciation maintain upward pressure on import costs. Production declines in the aircraft industry weigh on the overall transport equipment sector.
The report concludes that while Japan's industrial production remains unable to break free from its indecisive pattern, positive factors such as advancing inventory adjustments and strong capital investment demand are visible. Close monitoring of global economic developments is necessary to identify the transition to a recovery trend, with the balance between corporate productivity improvements and appropriate price setting being crucial for sustainable growth.