January data showed overall positive signs for the Japanese manufacturing sector. Production increased at a solid rate, alongside expansions in employment and buying activity. New order growth, meanwhile, slowed to a six month low, but was nevertheless strong in the context of historical data. Data suggested that
domestic demand weighed on total new order growth as new export orders increased at a sharper pace. On the price front, purchasing prices declined for the first time since November 2012.
The headline PMI posted at 52.3 in January, down slightly from 52.6 (the joint-strongest reading since March 2014), thereby signalling a sustained solid improvement in operating conditions in the Japanese manufacturing sector. Production at Japanese goods producers increased for the ninth month running at the start of 2016.
Despite slowing, growth in output was stronger than the average seen over the current sequence of expansion and sharper than the long-run series average.
According to panellists, an increase in new orders led to the expansion in output. At the sector level, all three market group sectors recorded growth in production.
Subsequently, total new orders rose for the seventh consecutive month. The rate of expansion eased to the weakest since July, but was nevertheless stronger than the long-run trend. Where total new orders rose, companies mentioned the launching of new products and success in gaining new clients. Helping to boost total new work intakes, new orders from abroad rose at a quicker rate than the average over the current four-month spell of expansion. Panellists linked stronger international demand to greater trade volumes with Europe and south-east Asia.
Meanwhile, buying activity increased at the sharpest rate in nearly two years. An expansion in production and a rise in sales were frequently cited as the main drivers behind the growth in purchasing activity. Manufacturers also hired extra staff in January, with employment growth broadly in line with that seen in the final quarter of 2015.
Finally, input prices decreased for the first time in over three years, as lower oil- and metal- related goods prices started to benefit goods producers in Japan. This fed through to selling prices, with manufacturers’ charges falling to the lowest since October last year.