Japan manufacturing activity sees record fall in 26 months

• Japanese manufacturing activity declined at the fastest rate in 26 months in December.
• The survey’s subindexes revealed both output and new orders contracted for a sixth consecutive month.
• Analysts anticipate Japan’s production to remain subdued due to a decline in international demand.

Japan manufacturing activity declined at the fastest rate in 26 months in December, according to a business survey released on Wednesday, with companies anticipating additional declines due to the global economic slump.

In December, the seasonally adjusted au Jibun Bank Japan manufacturing purchasing managers’ index decreased to 48.9 from 49.0 in November.

Although marginally higher than the preliminary result of 48.8, the measure was the lowest since October 2020 and was the second consecutive month below the 50-point line separating expansion from contraction.

Laura Denman, economist at S&P Global Market Intelligence, which compiled the survey, stated, “The downturn was largely centred around the current demand environment which is weak both internationally and domestically.”

The survey’s subindexes revealed both output and new orders contracted for a sixth consecutive month in December, but at slower rates than the previous month.

While the survey revealed a 15-month low in input price inflation, signalling lessening cost pressures, the remaining data pointed to bleaker prospects for Japan Inc. in early 2023.

Manufacturers anticipated a further deterioration in their business circumstances, with the subindex of future output reaching its lowest level since May, when China’s Covid-19 lockdowns impacted Japanese companies’ supply chains.

“Forward looking indicators are increasingly painting a gloomier picture for Japan’s manufacturing sector in the future,” Denman said.

The survey confirms the poor factory output figures reported last week, which showed a third consecutive month of loss in November.

In the coming months, analysts anticipate Japan’s production to remain subdued due to a decline in international demand, with the coronavirus situation in China offering an additional downside risk.

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