Japan factory activity struggles to recover as output falls

TOKYO (REUTERS) – Japan’s factory activity extended declines in September largely due to a sharper fall in output, as the world’s third-largest economy struggles to stage a robust recovery from the coronavirus pandemic.

The au Jibun Bank Flash Japan Manufacturing Purchasing Managers’ Index (PMI) was largely unchanged at 47.3 in September compared with a final 47.2 in the previous month.

Output contracted at a faster pace for the first time in four months, weighing on the headline index, which remained below the 50.0 threshold that separates contraction from expansion for a 17th month.

“New order inflows continued to fall in September, reflecting subdued demand,” said Bernard Aw, principal economist at IHS Markit, which compiles the survey.

“That said, the picture of the economy remained much improved when compared to the height of the pandemic during the second quarter.”

While still remaining in contraction, other indicators in the manufacturing survey such as new orders and suppliers’ delivery times saw their slowest pace of declines since January.

Other positive signs in the survey included manufacturers’ views on future output, which rose to a more than two year high.

Japan’s new prime minister Yoshihide Suga faces the daunting task of restoring the economy after it posted its worst postwar contraction in the second quarter.

Suga is expected to first target quick policy wins that will later give him the political capital to pursue tougher reforms.

The PMI survey also showed a slight improvement in service-sector activity in September, which contracted at its slowest pace in seven months.

The au Jibun Bank Flash Services PMI index rose to a seasonally adjusted 45.6 from the previous month’s final of 45.0.

The au Jibun Bank Flash Japan Composite PMI, which includes both manufacturing and services, edged up to 45.5 from a final 45.2 in August.

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