Japan Watch

The flash Nikkei Manufacturing PMI, compiled by Markit, edged lower from 51.4 in October to 51.1 in November, but that was still the second-best reading seen since January.

Output and new order growth slowed in November, but in both cases the expansions were the second-best recorded over the past ten months. Similarly, the employment index pulled back from the 30-month high reached in October but still signalled a welcome modest net increase in factory headcounts.

Key to the expansion has been an improvement in export performance. The survey’s index of new export orders signalled an increase in overseas sales volumes for a third successive month in November, halting a seven-month spell of continual decline.

The upturn in overseas sales reflected a combination of factors, including the recent weakening of the yen against the US dollar, reviving demand in many export markets, as well as supply chains returning to normal after earthquakes earlier in the year.

Domestic demand remained disappointingly weak, however, meaning the overall order books rise was in fact only very modest.

Latest survey data pointed to a further improvement in Japanese manufacturing business conditions in October. Production increased at the sharpest rate in ten months, supported by a return to new order growth. International demand also picked up, with new export orders increasing at the quickest rate since January. As a result, manufacturers took on additional workers at the strongest pace in two-and-a-half years. On the price front, both input prices and charges declined at weaker rates.

The headline PMI posted at 51.4 in October, up from 50.4 in September, signalling an improvement in operating conditions at Japanese manufacturers. In fact, the latest reading was the highest since January and greater than the long-run series average (50.6).

Contributing to the overall improvement in the manufacturing sector was an expansion in output. Moreover, the rate of increase was the quickest since December last year. According to panellists, stronger demand from both domestic and international clients led to the rise in production.

Total new orders rose for the first time since January during October. According to a number of surveyed respondents, the launching of new products and success in gaining new customers helped boost new orders. Data also suggested that an expansion in international demand also contributed to total sales growth. However, the rate of increase in total incoming new orders was only marginal overall.

New export orders rose at the quickest rate in nine months during October. Firms linked higher international demand to greater trade volumes with China, Taiwan, Europe and southeast Asian countries.

Japanese manufacturers were more confident to take on additional workers, with the rate of job hiring accelerating to a 30-month high. Meanwhile, buying activity remained in contraction territory, but only just.

Meanwhile, goods producers continued to benefit from lower cost burdens, as input prices decreased for the tenth consecutive month. Reports of reduced raw material costs stemming from the appreciation of the yen led to a fall in input prices. Prices charged also decreased, albeit at the weakest rate since February.