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Japan’s Factory Activity Expands for the First Time in a Year: May PMI Report

FILE PHOTO: A worker walks near a factory at the Keihin industrial zone in Kawasaki, Japan, March 8, 2017. REUTERS/Toru Hanai

Japan’s factory activity experienced expansion for the first time in a year this May, as indicated by a recent business survey. This marks a significant turnaround after months of sluggish performance in the manufacturing sector.

According to the au Jibun Bank flash Japan manufacturing purchasing managers’ index (PMI), the index rose to 50.5 in May, up from 49.6 in April. The 50.0 mark is the threshold that separates growth from contraction, and this is the first time the index has breached this level since May of the previous year.

“The expansion in business activity remained services-led, but the near-stabilization of manufacturing output offers hope for growth broadening out later in the year,” commented Jingyi Pan, economics associate director at S&P Global Market Intelligence, which compiled the survey.

The report highlighted that both output and new orders, which are the two main subindexes contributing to the headline figure, showed contraction but at a slower pace. Additionally, stocks of purchases increased at the fastest rate in 10 months, signaling potential future growth.

However, manufacturers’ optimism dipped slightly due to rising inflationary pressures, which pushed up input costs and output prices. This indicates that while the sector is beginning to recover, challenges remain, particularly related to cost management.

Japan’s business-to-business wholesale inflation remained steady at 0.9 percent in April, as the weakening yen increased import costs, according to government data released last week. Analysts predict that this inflation rate could accelerate in the coming months, adding another layer of complexity to the economic landscape.

Meanwhile, the service sector continued to expand in May, albeit at a slower rate. The au Jibun Bank flash services PMI fell to 53.6 in May from 54.3 in April. Despite this slight decline, strong business confidence led to an increase in employment levels at a faster pace, as noted in the survey.

Both average input costs and output prices in the service sector rose at a slower rate, but inflation remained well above their respective long-run averages, indicating persistent price pressures.

The au Jibun Bank flash Japan composite PMI, which combines both manufacturing and service sector activities, edged up slightly to 52.4 in May from 52.3 in April. This is the highest composite PMI reading since last August, reflecting an overall positive trend in Japan’s economic activity.

In summary, Japan’s manufacturing sector is showing signs of recovery with the first expansion in a year. This positive development is complemented by sustained growth in the service sector, suggesting a broader economic rebound. However, inflationary pressures and rising costs pose ongoing challenges that need to be managed carefully to sustain this growth trajectory.

Jhumpa Lahiri

Jhumpa Lahiri

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