Source: Markit Economics

Despite remaining above the neutral level of 50.0, the seasonally adjusted headline Nomura/JMMA Purchasing Managers’ Index (PMI), published today, fell to a four-month low of 52.3 in November, signalling that growth in the Japanese manufacturing sector continued to lose momentum. Official data issued today showed that industrial output rose 0.5% from the previous month, in October, much lower than forecasts for a 2.5% increase. The figure was also lower than the revised 2.1% increase in September, the Ministry of Economy, Trade and Industry said. In a separate report, the Labour Ministry reported that wages dipped for a 17th straight month in October.

Behind the latest PMI reading, November’s survey pointed to weaker rises in output and incoming new business, while pre-production inventories were reduced for the ninth month running. Suppliers’ delivery times lengthened at an accelerated rate, while the pace at which job cuts were implemented continued to ease.

Japanese manufacturing production rose for the sixth month running in November, although the rate of expansion was the least marked since June. The slower increase in production was largely reflective of weaker new business growth, which eased to the slowest for four months. Those survey participants that reported greater inflows of new work generally attributed this to firmer demand, with China mentioned in particular. However, growth was partly offset by subdued market conditions as customers remained wary about the immediate outlook for economic activity.

Backlogs of work in the Japanese manufacturing sector fell again in November. Although the rate of decline was the fastest for three months, it was much slower than the considerable reductions seen around the turn of the year.

Manufacturing employment in Japan continued to fall in November, albeit at the least marked rate since August 2008. Of those firms that reported a drop in staffing levels, the majority attributed this to an uncertain outlook for demand. Restructuring efforts, aimed at capturing productivity gains, were also cited by a number of panellists.

Average input costs faced by Japanese manufacturers fell for the twelfth month running in November. Despite easing to the slowest in 2009-to-date, the rate of decline remained marked. Some firms mentioned that competition remained strong amongst vendors, strengthening their ability to negotiate price discounts. Chemicals, paper and steel were all reported to have fallen in price in November.

November data indicated that prices charged by Japanese manufacturers were reduced at a sharp rate that was the most marked for nearly eight years. The majority of panellists that reported a reduction linked this to increased competition, which suppressed their ability to raise output prices.

In line with slower new business growth, purchasing rose at a weaker rate in November. However, increased input buying continued to place pressure on supplier capacity, with lead times lengthening at the fastest rate since March 2008.

Commenting on the Nomura/JMMA Japan Manufacturing PMI data, Minoru Nogimori, Economist of Financial & Economic Research Centre at Nomura, said: “The Japan Manufacturing PMI fell 2.0 points to 52.3 in November. Although it remains above the key dividing line of 50.0, it fell for the second consecutive month, suggesting that the pace of improvement in operation conditions is slowing. The New Export Orders Index also fell by 1.1 points to 50.5, signalling that the rate of expansion in export orders has obviously slowed. We see growth of Japanese production activity decelerating, owing to the fading impact of economic rebounds overseas, yen appreciation and as government stimulus measures start to wane.”

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.

Wages and Prices

Bank of Japan Governor Masaaki Shirakawa said on Monday, that the central bank shares the government's view that Japan is in moderate deflation and said the BOJ is always prepared to act promptly and decisively to ensure financial market stability.

Shirakawa said that the year-on-year rate of change in the consumer price index (CPI) in Japan rose to 2.4% in the summer of 2008, but it became negative from the spring of 2009, and registered the largest-ever decline of minus 2.4% in August 2009. The year-on-year rate of decline in the CPI somewhat moderated to minus 2.2% in October.

The year-on-year rate of Japan’s wages slid for a 17th month in October, extending their longest losing streak in six years and adding to worries that consumer spending will be subdued even as the economy recovers.

English text of the speech.

Monthly wages including overtime and bonuses fell 1.7% from a year earlier to ¥268,036 (€2,065; $2,975), the Labour Ministry said today -  - not exactly a fortune given that Japan is a perennial leader in world cost of living rankings.

Average annual 2007 earnings in Ireland were €37,726 (including annual bonuses and benefit-in-kind), across all sectors of the economy.

The average hourly wage for part timers throughout Japan was ¥973 (€7.5 compared with the Irish minimum hourly wage of €8.65) as reported by Nikkei BP (in Japanese) in 2008. Over one-third of the Japanese workforce are temporary workers.