Factory activity in Japan contracts at a softer pace, PMI shows

TOKYO (Reuters) – Japan’s factory activity contracted at a slower pace in August on a recovery in output and new orders, a private sector survey showed on Monday, offering some hope for an economy beginning to find its feet .

The final Purchasing Managers’ Index (PMI) from au Jibun Bank Japan rose to 49.8 in August from 49.1 in July and rose from 49.5 reported in the quick reading. It remained below the 50.0 mark that separates growth from contraction for two straight months.

“The headline reading was close to leveling off during August on the back of renewed output growth and a milder decline in new order intake,” said Usamah Bhatti of S&P Global Market Intelligence.

The manufacturing subindex expanded in August to the highest level since May 2022, reversing from July’s contraction. The recovery of new orders and the mass production of new products contributed to the increase in production.

New orders fell modestly on warm demand in both domestic and overseas markets, but the pace of decline has slowed since July. Some firms also mentioned overstock and poor investment from customers.

Sluggish demand from key export markets such as China and South Korea weighed on new exports, which contracted to their lowest level in five months.

Weaker overseas demand is a concern for policymakers, but a recovery in consumption has given the economy a boost, supporting expectations that the Bank of Japan will continue to raise interest rates as it exits a massive decade-long stimulus program.

The PMI showed input prices rose to their highest level since April 2023 as a weaker yen and higher commodity prices boosted inflation, an issue closely watched by policymakers.

amid pressure on households from rising cost of living.

Firms increased output charges for customers, albeit at the slowest pace since June 2021.

“Price data remained stubbornly high in August, providing further evidence of rising inflation amid reports of a general pick-up in input prices,” Bhatti said.

However, firms remained bullish on their business outlook, with manufacturers expecting an increase in sales and demand for sectors such as automotive and semiconductors.

Others also see a broad recovery in demand and economic growth, a sign of hope for BOJ policymakers as they watch the monetary course next year.

(Reporting by Kaori Kaneko; Editing by Shri Navaratnam)