Results highlight important support for the service sector economy as it continues to anchor growth in the face of a struggling manufacturing sectorTOKYO: Japan’s factory activity plummeted to its lowest level in 10 months as demand fell, but the services sector strengthened further in January.
This result highlights the important support for the services sector economy as it continues to anchor growth in the face of a struggling manufacturing sector.
Au Jibun Bank Flash Japan Manufacturing Punchasing Managers’ Index (PMI) sank to 48.8 from 49.6 in December. The index has been below the 50.0 threshold that separates expansion from contraction since June last year.
“Private sector business activity expansion remained services-driven,” said Usamah Bhatti, an economist at S&P Global Market Intelligence, who compiled the study.
The country’s manufacturing industry has been under pressure for several months due to subdued demand both at home and in key overseas markets. December trade data showed Japan’s exports to its two biggest trading partners fell 3%, with a 3% drop to China and 2.1% to the United States.
This is reflected in the PMI survey, which showed manufacturing output fell at its steepest pace since April last year, and the inflow of new orders slowed to its slowest rate in six months.
Nevertheless, the Bank of Japan is expected to raise interest rates to 0.50% from 0.25% on Friday.
Analysts say strong domestic wage momentum and price pressures support the case for rate hikes this week. Boj also said that wage increases have spread across companies of all sizes and sectors this month, and conditions continue to signal short-term increases.
Input inflation in the manufacturing sector eased slightly in January, with output prices unchanged from the previous month. Inventories of finished goods rose for the first time since July last year, anticipating an eventual recovery in demand.
Au Jibun Bank Flash Services PMI jumped to 52.7 from 50.9 in January thanks to a bump in new business.
Average input costs soared at the highest rate since August last year, and new exporters expanded for the first time since September, but price band inflation and business sentiment remained largely unchanged.
The Au Jibun Bank Flash Japan Composite PMI, which combines both manufacturing and service sector activity, increased slightly from 50.5 in December to 51.1 in January. (Reporting by Satoshi sugiyama Editing by Shri Navaratnam)
