Japan final April factory PMI points to domestic bounce, export weakness

7th May 2018

Japanese manufacturing activity expanded at a faster pace in April than the previous month, a revised survey showed on Tuesday, as new orders accelerated in a sign the economy is recovering from an expected rough patch in the first quarter.

However, growth in new export orders slowed sharply due to a stronger yen, posing an additional risk for Japan’s export-intensive manufacturing sector even as global trade tensions heat up.

The final Markit/Nikkei Japan Manufacturing Purchasing Managers Index (PMI) rose to 53.8 in April on a seasonally adjusted basis versus a flash reading of 53.3 and a final 53.1 in the previous month.

The index remained above the 50 threshold that separates expansion from contraction for the 20th consecutive month and rose for the first time in three months.

“April data pointed to a renewed acceleration in Japanese manufacturing sector growth,” said Joe Hayes, economist at IHS Markit, which compiles the survey.

“However, the new export orders index sub-component fell noticeably, albeit still remaining in expansionary territory, to signal only a marginal pace of growth.”

The final index for total new orders was 53.8, more than a preliminary 53.5 and a final 53.1 in the previous month, but growth in export orders slowed sharply to only marginal levels.

The yen JPY= has risen around 3 percent versus the dollar since the start of the year, and some economists have expressed concern that Japan’s exports could weaken if the yen rises further because this pushes up export prices.

Japan’s economy is forecast to have expanded an annualised 0.5 percent in the first quarter as consumer spending and factory output weakened, according to a Reuters poll. That would be a marked slowdown from 1.6 percent annualised growth in the fourth quarter. The data will be released on May 16.

The world’s third-largest economy has grown for eight straight quarters through the end of 2017, the longest continuous expansion since the 1980s bubble economy.

Some economists are worried that growth could remain sluggish due to a large increase in inventories in the semiconductor and electronic parts sector.

Source: REUTERS