Source: Markit

Japanese manufacturing output continued to rise in March but the rate of growth was the slowest in four months. Meanwhile, according to data issued by the Ministry of Economy, Trade and Industry in Tokyo today, production at factories fell a seasonally adjusted 0.9 per cent in February from January. Compared with a year ago, February production was up 31.3 per cent.

At 52.4 in March, the seasonally adjusted Nomura/JMMA Purchasing Managers’ Index  (PMI) remained relatively unchanged from the previous month, pointing to a modest improvement of operating conditions in the Japanese manufacturing sector. Nonetheless, the headline PMI averaged its lowest reading for three quarters in Q1, pointing to a moderation of growth momentum in the sector. Behind the latest PMI reading, March’s survey pointed to a slower rise in output and only a modest increase in new business. Jobs were shed at the least marked rate in nineteen months, while pre-production inventories fell following a slight rise in February. Meanwhile, delivery times lengthened at the fastest rate since November 2004.

Data signalled that Japanese manufacturing production rose again in March, albeit at the slowest rate in four months. Output growth was supported by further gains in new business, which rose for the ninth month in succession. The rate of expansion in new work was only modest, but contrasted with the severe reductions seen in Q1 2009. Where a rise in new orders was signalled, panellists often linked growth to firmer client demand from both domestic and external sources. According to the latest data, new export orders increased at the most marked rate since May 2004, supported by strong demand from South East Asia. China was also cited as a key source of new export business.

Backlogs of work were reduced at a moderate rate in March. Although new orders continued to increase, panellists generally commented that they were able to complete existing workloads. Staffing levels in the Japanese manufacturing sector fell only slightly in March. Subsequently, the average rate of decline was the slowest since August 2008. Anecdotal evidence suggested that job cuts reflected a combination of restructuring efforts and the need to reduce costs.

Average input prices rose for the third month running in March. Despite accelerating to the fastest since October 2008, the rate of inflation was still slower than the series average and that seen prior to the onset of the financial crisis. Aluminium, copper, nickel, petroleum and steel were all reported to have risen in cost.

Output prices set by manufacturers fell again in March, albeit at the slowest rate in the current sixteen-month period of decline. Panellists reported that price discounting reflected a combination of client requests for reduced prices and strong competition.
Although input buying fell, albeit at a fractional rate, the average time taken by suppliers to deliver inputs to manufacturers lengthened at the fastest rate since November 2004. This primarily reflected supply shortages at vendors.

Commenting on the Nomura/JMMA Japan Manufacturing PMI data, Minoru Nogimori, Economist of Financial & Economic Research Centre at Nomura, said: “Despite falling by 0.1 points to 52.4, the Japan Manufacturing PMI remained above the dividing line of 50.0 for the ninth consecutive month in March. The survey also pointed to a solid rise in Japanese manufacturing production. The New Export Orders Index rose for the second consecutive month, by 0.5 points to 55.7, still significantly above the dividing line of 50.0. We think that this suggests exports will likely remain firm in the coming months. We project that Japan’s exports will continue to grow at a relatively strong pace in tandem with an improvement in economic conditions in Asia ex-Japan, supporting the Japanese manufacturing sector.”

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.