Japan’s manufacturing sector moved closer to stabilization in August with only a modest fall in new orders, while output returned to expansion for the second time in three months. Manufacturing firms reported an increase in input buying for the first time since July 2022 amid additional production requirements.
In addition, employment growth picked up, though the level of outstanding business continued to moderate sharply. Moreover, input price inflation strengthened to a 16-month high as higher raw material prices and exchange rate weakness persisted.
The headline au Jibun Bank Japan Manufacturing Purchasing Managers’ Index (PMI) recorded 49.8 in August, up from 49.1 in July, which indicates a fractional contraction in the health of the Japanese manufacturing sector.
“The headline reading came close to stabilization during August amid a renewed rise in production and a softer fall in new order intakes. Firms also mentioned taking on additional staff while destocking efforts appeared to ease,” stated Usamah Bhatti at S&P Global Market Intelligence.
Output rises
The latest data revealed a renewed increase in output in August, which was the second in the past three months. The rate of growth was modest, yet reached the highest since May 2022. Firms also signaled a softer preference for the use of existing inventories, with the rate of accumulation stagnating during the month.
Japan’s manufacturing sector also reported improving new order volumes, which declined again in August albeit at a softer rate than in July. However, new export volumes declined the most since March amid evidence of low demand from key export markets including Mainland China and South Korea.
On the other hand, purchasing activity rose for the first time since July 2022. The rise was only marginal, however. Meanwhile, stocks of purchases fell slightly for the second month straight.
Price inflation picks up
Prices data showed that input price inflation picked up across Japan’s manufacturing sector in August. Input prices rose to the steepest degree since April 2023. The weak yen and higher raw material prices were key sources of inflation. Firms responded by raising their charges, though at the softest rate since June 2021.
“Firms opted not to fully pass through higher cost burdens to customers in an effort to remain competitive, with the rate of charge inflation the least marked since mid-2021,” added Bhatti.
Business confidence in Japan’s manufacturing sector gathered momentum in August and remained relatively high. Firms predicted a stronger domestic and global economic upturn.
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