Japan's manufacturing activity grew more than expected in January, with the S&P Global flash PMI rising to 51.5, its highest since August 2024. The reading beat forecasts of 50.1 and accelerated from 50.0 in December, marking a second consecutive month of expansion after a year of contraction.

The improvement coincides with growing optimism for fiscal stimulus and tax relief under Prime Minister Sanae Takaichi. Overseas demand, particularly from the U.S., also showed signs of recovery from a December trough, suggesting external pressures may be easing for the world's third-largest economy.

Services activity mirrored the positive trend, with its PMI climbing to 52.80 from 51.1, driven by robust local demand. This sector was a key engine of Japanese business activity throughout 2025, and its continued strength is crucial for sustaining the broader economic rebound into 2026.