Factory Activity Plunges to Three-Year Low
Japan’s manufacturing industry has suffered a severe setback, with factory activity plummeting at its fastest rate in over three years. According to the au Jibun Bank’s flash Japan manufacturing purchasing managers’ index (PMI), the sector’s activity index nosedived to 47.2 in February, down from 48.0 in January. This decline signals a ninth consecutive month of contraction and the sharpest since August 2020.
Weakening Demand Dents Output and Orders
The dismal PMI reading reflects a decline in both output and new orders. Manufacturers reported a drop in demand both domestically and internationally. The weak demand conditions have led to a reduction in employment levels for the second consecutive month, marking the steepest decline since January 2021.
These disheartening figures follow official statistics showing a 7.5% decline in Japan’s manufacturing output in January compared to the previous month. Analysts at Moody’s Analytics have painted a gloomy outlook for Japanese manufacturers, citing slowing global demand compounded by weak domestic consumption.
Technical Recession Raises Concerns
Adding to the manufacturing sector’s woes, recent data has revealed that Japan’s economy has entered a technical recession after contracting unexpectedly in the October-December period. This decline has resulted in Japan losing its ranking as the world’s third-largest economy to Germany.
Despite the barrage of negative economic news, Japan’s benchmark index, the Nikkei 225, has defied gravity, reaching an all-time high last week. The index surpassed its previous record set in 1989 and continues to climb, posting a 1.73% gain on Friday morning.
Cautious Optimism Amidst Economic Headwinds
Despite the current economic challenges, au Jibun Bank remains optimistic about the industry’s long-term prospects. The bank expressed hope for a broad-based recovery in manufacturing and the economy as a whole. However, the road ahead for Japan’s manufacturers remains shrouded in uncertainty, as the sector grapples with dwindling demand and a global economic slowdown.
