Japan industrial production down for first time since May 2009

At 47.2 in October, down from 49.5 in the previous month, the headline seasonally adjusted Nomura/JMMA Purchasing Managers’ Index (PMI) pointed to the strongest month-on-month deterioration in Japanese manufacturing sector operating conditions since May 2009. Behind the latest PMI reading, October’s survey pointed to declines in output and new orders, while employment fell for the third month in succession.

Japanese manufacturing output fell moderately in October, ending a 16-month period of growth. Where a decline in production was signaled, firms often linked this to reduced inflows of new business. Some manufacturers also cited the expiration of government subsidies aimed at encouraging the purchase of eco-friendly automobiles.

New business fell for the third successive month in October. The rate of contraction was marked, and quickened to the fastest since April 2009. Intakes of new work fell amid lackluster demand from both domestic and external sources. Highlighting the latter, new export business received by Japanese manufacturers fell for the first time in 17 months during October, predominantly reflective of adverse exchange rate variations.

Backlogs of work in the Japanese manufacturing sector fell further in October, decreasing at a marked rate that was the fastest since May 2009. The latest decline stretches the current period of contraction to four months.

Manufacturing employment in Japan fell for the third month running during October. However, the rate of job shedding was only marginal. Those respondents that reported a decline in staff numbers often linked this to an increased number of employee retirements. Some companies also mentioned the need to reduce costs.

Anecdotal evidence suggested that the strength of the yen continued to suppress price pressures in October, with both output charges and input prices falling since the preceding month. Average cost burdens decreased marginally, with companies reporting that the cost of imported items had fallen since September. Meanwhile, manufacturing firms continued to reduce their output prices in an attempt to improve the competitiveness of their goods. Factory gate charges have decreased continuously since December 2008.

Commenting on the Nomura/JMMA Japan Manufacturing PMI data, Kohei Okazaki, economist of the Financial & Economic Research Center at Nomura, said: “The Japanese Manufacturing PMI in October declined 2.3 points to 47.2. This is the second successive month in which the index has posted below 50.0, which is taken as the threshold of growth. The New Orders (down by 4.6 points) and Output Indexes (down by 3.9 points) were the main factors behind the decrease. This result implies that the recent recovery is becoming feeble and the economic environment for Japanese companies seems to still be severe. Moreover, the New Export Orders Index fell below 50.0 in October, after posting above for 16 successive months, consistent with deteriorating exports. Whether the New Export Orders Index recovers soon or not will become the focus of attention with regards to economic prospects for the Japanese economy.”