Japan's factory index falls, focus shifts to BOJ meet

Preliminary factory index reading reveals Japan's manufacturing sector remained in a solid expansionary state in January though declined slightly from December.

The Nikkei-Markit Flash Japan Manufacturing Purchasing Managers Index (PMI) stayed at 52.6 in December, but fell to a preliminary 52.4 in January. Japan's manufacturing sector has benefited hugely from a rapid weakening in the Japanese yen over the last few years, making domestic production more competitive and increasing firms' profitability.

However, this has been put in danger with the recent appreciation of the yen, as investors seek safe haven assets in the face of continually tumbling commodities and the increasing frequency of market routs. Profits across the board have been squeezed as Japanese companies lose out in currency markets.

Bank of Japan (BoJ) Governor Haruhiko Kuroda is under increasing pressure to announce further stimulus measures at the banks rate review meeting next week. The BoJ has decided to keep monetary policy static at its last three meetings, since expanding stimulus measures at their October 2014 meeting. However, recent economic trends continue to dampen optimism around hitting the ambitious inflation target.