Japan’s manufacturing activity shrinks in July, albeit at slower rate

Manufacturing activity in Japan contracted at a decelerating pace in July from June. Flash Japan Manufacturing PMI for July rose to 49 from June’s 48.1. The flash headline PMI hinted at deteriorating operating conditions; however at the weakest pace in four months. The manufacturing output index also rose to 49.3 in July from June’s 48.1. Production in Japan shrank at the slowest pace since March.

Meanwhile, the flash PMI data indicated that new orders dropped, albeit at slower pace, whereas employment rose at a more rapid rate in July. Backlogs of work decreased at a slower rate in July, while output prices and input prices dropped at a rapid pace.

The start of the third quarter has hinted at deteriorating operating conditions in the nation’s manufacturing sector. Also, external demand has dropped at the sharpest pace in more than three-and-a-half years. According to Markit economist Amy Brownbill, several panelists blamed yen’s appreciation that is resulting in a reduction in global competitiveness.

“On a more positive note, the stronger yen/dollar rate helped to ease inflationary pressures as input prices decreased at the fastest rate since November 2009. Jobs growth also picked up, although was marginal overall," added Brownbill.