Inflation up in Japan in 2026, faster output growth: S&P Global

Private sector output rose at the quickest pace in nearly a year-and-a-half, reflecting resilient growth in January.

Japan’s business activity expanded at a faster pace at the start of 2026, flash PMI data compiled by S&P Global shows.
Private sector output rose at the quickest pace in nearly a year-and-a-half, reflecting resilient growth in January.
Business optimism faded amid concerns over both domestic and external conditions.
S&P Global Market Intelligence expects GDP growth to moderate to 0.9 per cent in 2026.

This was underpinned by stronger demand growth, which was in turn driven by the first rise in manufacturing new orders since May 2023, wrote Jingyi Pan, economics associate director, operations—index management and production group, at S&P Global.

Japanese businesses responded to greater capacity pressures with additional hiring in January.

Business optimism faded amid concerns over both domestic and external conditions. This was despite new export orders rising at the fastest pace in over four years.

Meanwhile, price pressures intensified, especially in the manufacturing sector amid the depreciation of the yen. The combination of accelerating growth and rising prices further builds the case for the Bank of Japan to tighten policy sooner rather than later, even as sentiment indicators continue to flash warning signs, said S&P Global.

The S&P Global flash Japan PMI composite output index posted above the 50 neutral mark for the tenth straight month in January to signal another expansion in business activity.

Moreover, the rate of growth was the fastest in nearly one-and-a-half years and solid overall.

The acceleration in growth marks a departure from the more subdued expansions in private sector activity seen at the end of 2025, and demonstrates resilience in growth at the start of the year despite earlier concerns of a more protracted slowdown amid external geopolitical and trade uncertainties, Pan remarked.

At current levels, the latest PMI reading is indicative of GDP growing at a quarterly rate of around 1 per cent in January, which rests above the 0.2-per cent average seen over the past decade.

S&P Global Market Intelligence currently expects gross domestic product (GDP) growth in Japan to moderate to 0.9 per cent in 2026, down from a forecast of 1.2 per cent for 2025. The PMI reading reinforces its latest growth forecast.

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