Japan’s Factory Activity Contracts for 10th Month, but Signs of Improvement Emerge
In a recent survey, Japan’s factory activity in March continued to contract for the 10th consecutive month, but there were signs of improvement compared to previous months. The final au Jibun Bank Japan manufacturing purchasing managers’ index (PMI) for March was at 48.2, the highest level since November. This was an improvement from February’s 47.2, which marked the fastest pace of contraction in over 3-1/2 years.
While the index has remained below the 50.0 threshold that separates expansion from contraction since last June, conditions for manufacturers were starting to slowly turn up. Output and new orders, the two main subindexes contributing to the headline figure, declined again but at a slower pace than in February.
Global demand remained a major headwind, with new export orders declining at the fastest pace since February 2023. Business confidence soured in key markets including China and North America, impacting Japan’s manufacturing sector.
Despite challenges, there were some positive developments. Delivery times lengthened at the slowest pace in six months, and input inflation was the slowest since February 2021. Employment rose at the quickest pace since July, and business optimism remained solid on hopes for a broad-based domestic and global demand recovery.
The upbeat mood in the manufacturing sector would be welcome news for policymakers as Japan shifts away from years of monetary stimulus. The country made a historic decision last month to raise interest rates for the first time since 2007. Overall, while challenges persist, there are signs of improvement in Japan’s manufacturing sector.