Source: Markit Economics

The seasonally adjusted headline Nomura/JMMA Purchasing Managers’ Index (PMI) rose to 48.2 in June, from 46.6 in the previous month, to signal that operating conditions in Japan’s manufacturing sector worsened for the sixteenth month in succession. However, the overall deterioration was the least marked since April 2008, largely reflecting an expansion of output and slower reductions in new orders and employment. Having registered a record low at the beginning of the year, the headline index has now risen for five months in a row and gained over eighteen points.

June data pointed to the first rise in output levels at Japanese manufacturers since February 2008, largely as a result of improved economic sentiment and market conditions. Although broadly in line with the historical series average, growth was only marginal as weak overall demand acted to limit therate of expansion.

Total new orders fell for the sixteenth month in a row, although the rate of decline was only slight.

Latest data indicated that the primary source of demand weakness came from the domestic market, as export sales increased for the first time in seventeen months. Growth of foreign orders was attributed by panellists to an improvement in demand from China (a key export market).

Prices charged by Japanese manufacturers fell for the seventh month running in June, which many respondents linked to strong competition and discount requests from clients. Although still marked, the rate of decline accelerated to its fastest since February.

Average input prices faced by Japanese manufacturers continued to fall in June, with the rate of decline remaining historically sharp. Where panellists reported a drop in input costs, this was frequently linked to falling prices for a range of raw materials.

Levels of work outstanding fell further in June, extending the current period of decline to seventeen consecutive months. However, the rate of backlog clearance continued to ease from February’s record to its weakest in just over a year.

A slower reduction in new work was the principal factor leading to the weaker decline in unfinished business.

Employment in the Japanese manufacturing sector fell for the eleventh straight month in June. Although the rate of job shedding was marked, it slowed to the weakest since October last year. Companies linked the latest drop in staffing levels to the non-replacement of voluntary leavers and a reduction in temporary workers.

Commenting on the Nomura/JMMA Japan Manufacturing PMI data, Minoru Nogimori, Economist of Financial & Economic Research Centre at Nomura, said: “Despite rising by a cumulative 18.6 points from a trough in January, the Japan Manufacturing PMI remained below the critical no-change mark of 50.0 in June, suggesting that the manufacturing sector has not yet gone through a phase of full fledged recovery. However, the New Export Orders Index rose above 50.0 for the first time since the beginning of 2009, to signal that export orders returned to growth in June. We expect the recovery of the Japanese economy to become clearer as the manufacturing sector picks up on the back of rising exports.”

The Nomura/JMMA Japan Manufacturing PMI is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 400 industrial companies. The panel is stratified by Standard Industrial Classification (SIC) group, based on the industry contribution to GDP.