Operating conditions in the Japanese manufacturing sector improved in July. Production increased at the fastest rate since February, underpinned by a return to new order growth. Concurrently, employment rose at the quickest rate since December 2014 and buying activity expanded, reversing the trend observed in the prior month. Meanwhile, greater cost burdens were evident, as input prices rose, albeit at a weaker rate than the long-run series average.
At 51.2 in July, up from 50.1 in June, the headline PMI signalled an improvement in operating conditions at Japanese manufacturers. Although marginal, growth was the quickest since February and stronger than the historical average. The latest reading reflected expansions in production, new orders, employment and stocks of purchases.
Indicative of an overall improvement in the manufacturing sector was a further increase in production. Output growth accelerated to a five-month high, with both consumer and investment goods producers recording expansions in production. According to anecdotal evidence, the securing of new clients and stronger demand conditions led to the latest increase.
Underpinning the expansion in output was a return to new order growth in July. Similar to production, the latest increase was the quickest since February and sharper than the long-run series average. Survey companies mentioned advertising campaigns and a greater client base as factors behind the expansion in new work.
New orders from aboard at Japanese goods producers increased in July. Despite easing from June’s 18-month record, the rate of expansion was in line with the average over the current 13-month sequence of growth. New product launches and success in gaining new international clients were cited as drivers behind greater foreign demand.
Subsequently, employment increased at the fastest rate this year so far. Meanwhile, buying activity rose for the second time in the past five months.
On the price front, purchasing costs increased amid reports of the depreciation of the yen against the dollar driving up raw material costs. However, the rate of appreciation was slower than the current 31-month period of inflation. Manufacturing charges, on the other hand, declined for the first time in three months, albeit at only a marginal rate.