Japan Factory Activity Shrinks the Most in 2-1/2 Years

Reuters

11:59 JST, March 1, 2023

TOKYO (Reuters) – Japan’s factory activity shrank in February at the fastest pace in over two years, a private survey showed, highlighting companies’ struggles amid a global economic slowdown, raw material inflation and policymakers’ calls for higher wages.

The final au Jibun Bank Japan Manufacturing Purchasing Managers’ Index released on Wednesday fell to 47.7 in February from January’s 48.9. Although higher than the flash reading, it marked the fastest decline since September 2020.

“Both new orders and production levels, which make up 55% of the headline PMI figure, fell at the fastest pace since July 2020 as weak domestic demand and a global economic slowdown hindered sales and output volumes,” said economist Usamah Bhatti at S&P Global Market Intelligence, which compiles the survey.

Manufacturing output and new orders contracted for an eighth consecutive month and at the fastest rates in 31 months, the survey showed.

The final PMI reading comes a day after government data showed Japanese factories slashedoutput in January at the fastest pace in eight months, dragged down by auto and semiconductor sectors.

The downturn in factory activity is likely to be sustained over the near term, Bhatti said, “as the absence of new orders amid dampened client confidence lifted capacity pressure on manufacturers further.”

The sub-index gauging backlogs of work was at the lowest since September 2020, underscoring the frail customer demand.

Input price inflation slumped to its slowest pace in 18 months, while the rate of output price inflation rose for the first time in four months as more companies successfully passed on elevated costs to clients.

On the brighter side, supplier delivery delays were the least prevalent in two years, the survey showed.

Recent data showed Japan’s economy averted recession but rebounded much less than expected in the fourth quarter last year as business investment slumped. The Bank of Japan remains an outlier in the current global monetary tightening phase, committing to maintaining ultra-low rates to shore up its COVID-ravaged economy.