Japan Manufacturing PMI Shrinks For 11th Straight Month In May On Trade Headwinds

Summary:

Investing.com-- Japan’s manufacturing sector shrank for an eleventh straight month in May, purchasing managers index data showed...

Japan’s manufacturing sector shrank for an eleventh straight month in May, purchasing managers index data showed on Thursday, as softer local and overseas orders, amid concerns over increased U.S. trade tariffs, dented output.

The au Jibun bank flash manufacturing PMI read at 49 for the first three weeks of May as expected, although it improved slightly from the 48.7 seen in the prior month. A reading below 50 indicates contraction, with factory activity shrinking for an eleventh consecutive month.

May’s reading improved mildly from April on softer fells in new orders and export business. But production remained weak as export orders were pressured by increased U.S. trade tariffs, while domestic demand was also seen steadily cooling amid heightened economic uncertainty.

The au Jibun data also showed that overall Japanese business sentiment remained among the lowest seen since the COVID-19 pandemic.

Japan’s services sector fared slightly better, with the au Jibun bank flash services PMI remaining in expansion at 50.8 in May. But the sector slowed from the 52.4 seen in April, with client demand also seen slowing.

This saw overall business activity shrink for the second time in three months, with the au Jibun flash composite output index down to 49.8 in May from 51.2 in April.

Japan’s manufacturing sector was battered by increased U.S. trade tariffs, which weighed heavily on the electronics, industrial, and most importantly, the automobile sector.

Tokyo has engaged in steady trade talks with Washington, but has so far seen little progress towards the removal of all U.S. tariffs.

Source: Investing

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Key points:

● G7 ministers seek to avoid repeat of 2018 'G6-plus-one' discord

● Italy's finance minister calls communique compromise 'crucial'

● G7 consensus on war in Ukraine, Russian oil price cap seen difficult

● France's Lombard says G7 progress more important than joint statement

Finance leaders from the Group of Seven industrialized democracies sought on Wednesday to downplay disputes over U.S. PresidentDonald Trump'stariffs and find some common ground to keep the forum viable as they met in the Canadian Rocky Mountains.

Participants said the G7 finance ministers and central bank governors were striving to issue a joint communique covering non-tariff issues, including support for Ukraine, the threat from non-market economic policies of countries including China, and combating financial crimes and drug trafficking.

At the meeting in Banff, Alberta, the finance leaders want to avoid a G7 fracturing similar to the last time Canada hosted the group in 2018 during Trump's first term, when his initial steel and aluminum tariffs made a joint statement impossible.

That meeting, described as the "G6 plus one," ended with Canada, Japan, Germany, France, Britain and Italy expressing "unanimous concern and disappointment" over Trump's tariffs.

Trump's tariffs are far more extensive this time, but G7 sources said there was an effort to find compromise with Treasury Secretary Scott Bessent.

"Italy continues to work so that the final compromise communique can be reached. A step we consider crucial," Italian Economy and Finance Minister Giancarlo Giorgetti said in a social media post.

Other ministers were more willing to live without a joint statement as long as the group reached a better understanding on trade imbalances.

"This G7 meeting allowed us to progress toward a better alignment on the support of Ukraine, on reducing global imbalances and on growth policies," said French Finance Minister Eric Lombard, who has a bilateral meeting set with Bessent. "And making progress is what matters ultimately. It's not just a question of agreeing on a statement today for the sake of it."

UKRAINE DISCORD

But G7 delegation sources said it remained unclear whether the leaders could agree on joint communique language. One European source said, for example, that U.S. officials wanted to delete language describing Russia's invasion of Ukraine as "illegal" from the draft.

Giorgetti said that Italy is pushing a proposal to bar countries that have done business in support of Russia's war effort from being part of Ukraine's reconstruction. The idea echoes what Bessent said last month that "no one who financed or supplied the Russian war machine will be eligible for funds earmarked for Ukraine’s reconstruction."

China has been key in helping Russia circumvent Western sanctions and has served as a conduit of high-tech and battlefield goods such as drone components.

Delegates were discussing a possible lowering of the $60-a-barrel G7 price cap on Russian crude oil.

"We expect a thorny discussion on the price cap," one of the officials said.

The EU is pushing to lower the price level as it works on an 18th package of sanctions against Russia aimed at Russian energy and the financing of sanctions circumvention.

"There is no agreement yet on the communique but it’s fundamental that we get this communique. It would be serious if not agreed," a European official said. "At the end of the day, we are only seven countries."

CALMING INFLUENCE

A second European official said Bessent's participation in the meeting and efforts to try to find common ground provided some comfort to the group, describing him as "flexible."

"At the dinner last night, Bessent was very open and not rigid. He talked about working for a solution," the official added.

A U.S. Treasury spokesperson declined to comment on the G7 deliberations.

A U.S. source briefed on Bessent's positions said on Monday that Washington would not agree to a joint statement unless it served U.S. priorities, which include stronger G7 steps to combat non-market practices such as China's subsidies that have led to excess manufacturing capacity.

"The message we're passing on to Bessent is that tariffs are not the correct response to dealing with global imbalances," another European official said.

At the same time, Bessent was holding bilateral meetings with G7 counterparts, agreeing with Japanese Finance Minister Katsunobu Kato that the current dollar-yen exchange rate reflects fundamentals, according to a U.S. Treasury statement that added they did not discuss specific currency levels.

Japan is seeking to negotiate a tariff-reducing trade deal with the U.S.

Bessent also was meeting with France's Lombard and Canadian Finance Minister Francois-Philippe Champagne on Wednesday after a first meeting with Germany's new Finance Minister Lars Klingbeil on Wednesday.

A German source at the G7 meeting described the discussion as an open and constructive exchange that lasted longer than planned, and the two men agreed to meet again in Washington after Bessent extended an invitation.

Japan, Germany, France and Italy all face a potential doubling of U.S. duties to 20% or more in early July. Britain negotiated a limited trade deal that leaves it saddled with 10% U.S. tariffs on most goods, and host Canada is still struggling with Trump's separate 25% duty on many exports.

Source: Reuters

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Manuel

Cryptocurrency

Vitalik Buterin, Ethereum co-founder, announced plans to potentially raise Ethereum's gas limit by 10 to 100 times. This statement was made on May 21, 2025, via the social media platform X.

The proposal reflects Ethereum's ongoing journey toward Layer 1 scalability improvements, following technical advancements by Succinct Labs that could revolutionize the network's real-time processing capabilities.

Vitalik Buterin's Proposal and Technological Breakthroughs

Vitalik Buterin's announcement on increasing Ethereum's gas limit was triggered by recent technological advancements at Succinct Labs. The ability to prove Ethereum blocks swiftly using zero-knowledge technologies sparked this vision of enhanced throughput.

The proposed increase could drive down transaction fees due to expanded network capacity, signaling a potential shift in Ethereum's approach to Layer 1 scalability. However, realizing this vision depends on overcoming significant technical hurdles like worst-case scenario management and energy efficiency improvements.

Community and market response has been cautiously optimistic. While potential efficiency gains are welcome, industry experts emphasize the need for addressing technical concerns that Buterin highlighted, including model verification and power consumption reductions.

Market Reaction and Expert Analysis on Gas Limit Increase

Did you know? Ethereum's current average gas limit is approximately 35.99 million gas units, with this proposal possibly expanding it to between 360 million and 3.6 billion units.

As of May 21, 2025, Ethereum (ETH) holds a market cap of $308.55 billion with a price of $2,555.75, reflecting a 24-hour increase of 1.01%. According to CoinMarketCap, Ethereum's 30-day price surged by 62.15%, although it saw a 6.59% dip over 90 days. These fluctuations highlight the asset's dynamic market behavior.

Source: Coincu

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Olivia Brooks

Economic

U.S. President Donald Trump said on Wednesday evening that he was seriously considering taking federally controlled mortgage giants Fannie Mae and Freddie Mac (OTC:FMCC) public.

“I will be speaking with Treasury Secretary Scott Bessent, Secretary of Commerce Howard Lutnick, and the Director of the Federal Housing Finance Agency, William Pulte, among others, and will be making a decision in the near future,” Trump said in a social media post.

“Fannie Mae and Freddie Mac are doing very well, throwing off a lot of cash, and the time would seem to be right.”

Fannie and Freddie were created by Congress as for-profit corporations with the mission of growing the national home lending market by buying home loans from private lenders and converting them into mortgage-backed securities.

The two have been in federal conservatorship since the 2008 financial crisis, although the U.S. Treasury Department and the Federal Housing Finance Agency had earlier in 2025 said they were looking at an eventual exit from federal control for the two.

Fannie Mae- formally known as the Federal National Mortgage Association (OTC:FNMA), and Freddie Mac– known as the Federal Home Loan Mortgage Corporation– are both government-sponsored enterprises, and had become illiquid during the 2008 subprime mortgage crisis.

This prompted federal intervention, although the goal was to develop an operating structure to allow a return to self-management. Both companies were seen building their capital reserves for a return to self-management eventually, and have repaid their Treasury loans.

Government consideration over their privatization has been ongoing since Trump’s first term. Shares of both companies currently trade in over-the-counter markets, and it was unclear how Trump plans to bring the two public.

Source: Investing

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Cryptocurrency

Texas's move represents significant state-level crypto adoption, signaling potential regulatory shifts and impacting market dynamics.

The Texas legislature recently passed Senate Bill 21, which proposes the establishment of a Bitcoin reserve. This move, still awaiting Governor Greg Abbott's signature, makes Texas potentially the largest economy to hold Bitcoin as a state reserve.

The bill involves the Texas Comptroller as the reserve's manager and arose from efforts by the Texas Blockchain Council, led by Lee Bratcher. The legislation creates a legal framework but does not specify immediate Bitcoin allocation.

Market participants anticipate the bill's implications on Bitcoin's state-level recognition. Financial markets and blockchain communities are focusing on the direct and indirect impacts of such large-scale government crypto adoption.

Although the bill lacks specific allocation details, it points towards broader regulatory acceptance of crypto assets. As Lee Bratcher, President of the Texas Blockchain Council, noted: "While SB 21 sets up the reserve, separate legislation is being prepared to decide how much Bitcoin the state will actually allocate to the fund. That decision, however, remains pending." Texas's role could influence other states or regions to consider similar legislation, potentially altering the cryptocurrency landscape.

The bill's current form restricts the reserve to Bitcoin, given its market cap criteria. Ethereum and other altcoins do not qualify, which might affect their perceived value in state reserves.

Texas's initiative parallels smaller-scale efforts by states like New Hampshire. Historical trends show government crypto purchases can spur market interest and minor price fluctuations. Observers speculate on potential regulatory or fiscal outcomes statewide.

Source: Coinlive

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China–U.S. Trade War

Economic

There has been progress towards a solution on a damaging tariff dispute with the United States but there are more hurdles to overcome, the Bundesbank's President Joachim Nagel told German television on Wednesday from the G7 meeting in Canada.

Speaking to the ARD broadcaster, European Central Bank policymaker Nagel said the United States was showing better understanding of Europe's point of view and that there was acknowledgement on both sides that trade conflicts have no winners.

Finance ministers from the Group of Seven industrial democracies are meeting in the mountain resort town of Banff, Alberta, against the backdrop of a global trade dispute after President Donald Trump unleashed sweeping tariffs.

"My impression here is that we are beginning to come closer together on certain issues, to better understand each other, but there are still some hurdles to overcome. So, there is still a lot of work to be done," Nagel said.

"I also believe that the U.S. side now understands some things better, and I am a little more confident than I perhaps was a few days ago," he added.

The German Council of Economic Experts had earlier cut its forecast for Europe's largest economy, expecting it to stagnate this year during a "pronounced phase of weakness."

Nagel said the projection was not a surprise, given the damaging uncertainty of the tariffs. He said first-quarter growth could be better than expected but saw growth worsening in the second quarter as the effects of the tariff dispute are felt.

He looked forward to stronger growth of 1% or more in 2026, depending on how quickly the government implemented planned fiscal measures.

In a separate interview with German broadcaster ZDF, Nagel said U.S. Treasury Secretary Scott Bessent had been constructive.

Nagel said he did not see a split in the G7 group into six countries against the United States. "It's a G7."

Source: Reuters

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Bond

Bond market jitters are back — and this time, it’s not just about inflation. Long-term Treasury yields surged to kick off the week as Moody’s US credit downgrade reignited market concerns over the country’s worsening fiscal trajectory. On Monday, the 30-year Treasury yield briefly broke above the closely watched 5% threshold, the highest level since 2023, before retreating to around 4.94% as the bond market ultimately shrugged off the downgrade. But the pullback didn’t last.

Yields ticked higher again Tuesday, and by Wednesday the 30-year climbed back above the closely watched 5% mark. In afternoon trading, a weak Treasury auction sent yields even higher. It ended the trading day up about 12\tbasis points near 5.09%. The 10-year yield traded around 4.6%, the highest since February. Since bond prices move inversely to yields, rising yields indicate investors are selling bonds. This behavior runs counter to the typical flight-to-safety response during market turmoil and has fueled worries of a broader “sell America” trade. Wall Street analysts say the volatility reflects a shift in investor sentiment as recent optimism around trade developments gives way to renewed concern over the nation’s ballooning debt. And while markets initially shrugged off the credit downgrade, analysts caution the bond market isn’t out of the woods, pointing to rising fiscal uncertainty and stubborn inflation as key factors likely to keep long-term yields volatile in the short run.

Citi analysts said Monday that the US “fiscal space” is narrowing due to reduced tariff revenues, meaning the government has less leeway to increase spending without worsening its debt outlook. At the same time, the potential for major fiscal expenditure is growing under President Trump’s proposed “big, beautiful” tax bill. “We have expected a narrative shift could take place from positive tariff news to negative budget/fiscal issues, which can see another round of ‘sell the US’: higher back-end yields [or long-term interest rates], lower risk assets, and lower US dollar,” Citi analyst Daniel Tobon wrote in a note to clients on Monday. He warned that a sustained move above the 5% level on the 30-year Treasury yield could trigger a broader repricing of fiscal risk, with ripple effects for the dollar and global risk assets.

Trump’s tax proposal, still in its early stages in Congress, calls for sweeping cuts to individual and corporate tax rates, which would raise the nation’s debt ceiling by $4 trillion. Republican leaders are aiming for a vote in the House of Representatives before Memorial Day. “The clearest way in which these [deficit and budget reconciliation] uncertainties have manifested themselves is through a steeper US Treasury yield curve,” Kelsey Berro, fixed income portfolio manager at JPMorgan Asset Management, told Yahoo Finance on Monday. Historically, a steeper yield curve, which occurs when long-term interest rates rise faster than short-term ones, signals expectations of stronger growth or higher inflation. But as Berro noted, concerns over rising US debt and long-term borrowing costs are driving the steepening this time around.

While short-term yields like the 2-year and the 5-year have remained relatively stable, reflecting expectations that the Fed will hold interest rates steady, longer-term yields like the 10-year and 30-year have climbed more sharply as investors demand greater compensation for mounting fiscal and policy uncertainties. This additional compensation investors demand amid such unknowns is known as the term premium.

Its recent rise signals growing concern over the US’s role in the global economy and the future direction of both fiscal and monetary policy. “Ongoing tariff uncertainty means elevated risk of a recession in the US,” BNP Paribas’ James Egelhof and Guneet Dhingra wrote. “If a recession occurred, we think that concerns about debt sustainability would mean a less robust countercyclical fiscal response than observed in prior business cycles. This would mean a longer and deeper recession, with a larger monetary policy response.”

“Nail in the coffin” The possibility of a US recession, Moody’s credit downgrade, and other weakening market signals have prompted some global investors to look elsewhere for more attractive returns. “There’s a little bit more of a nail in the coffin in the sense that investors are looking at other options, and particularly international investors are looking at other options,” Ellen Hazen, chief market strategist and portfolio manager at F.L.Putnam Investment Management, told Yahoo Finance on Monday. “So you may see flows out of the US because of these structural reasons.”

Kathy Jones, head of fixed income at Charles Schwab, echoed this sentiment, emphasizing that while there’s no real substitute globally for US Treasurys, current policies are making it harder to attract foreign buyers. “By attempting to reduce our trade deficit in goods and services, we’re effectively limiting capital inflows and shrinking our capital account,” she explained, arguing that this conflicts with the urgent need to finance the upcoming spending bill and other activities.