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Japan's factory output slumps in December

By Hugh Wilson

PMI shows manufacturing sector ‘stuck in contraction’ as companies struggle to stimulate demand

Japan’s manufacturers ended 2019 in disappointing fashion, with output shrinking to its lowest level since March.

The Jibun Bank Japan Manufacturing Purchasing Managers’ Index (PMI) fell to 48.4 in December, down from 48.9 the previous month. A figure below 50 represents contraction.

Joe Hayes, economist at IHS Markit, which compiles the survey, said: “Japan's manufacturing sector has ended 2019 where it started, stuck in contraction with little hope of an imminent turnaround.”

The PMI showed a slump in both domestic demand and foreign orders, with output prices falling as companies struggled to stimulate demand. Output was reduced in December by the second fastest rate in three and a half years.

Manufacturers blamed a challenging domestic environment for the slump, alongside global trade conflicts and, in particular, slowing demand from China.

“Looking at the sub-sector data, the capital goods market appears to be suffering the most and has subsequently contributed to the stronger decline in the goods-producing economy,” said Hayes.

“That said, survey data highlighted that weak demand remains an industry-wide problem, impacting output volumes and causing firms to cut their prices in hopes of turning the tide.”

The PMI did highlight one or two chinks of light in the gloom. Employment in the sector continued to grow, suggesting firms anticipate higher production volumes in the new year. Optimism in regards to output strengthened to an eight-month high.

FURTHER READING: Bank of Japan maintains negative interest rates, to government’s chagrin

FURTHER READING: Abe prepares stimulus package to kickstart Japanese economy

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