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Demand for Japanese manufactured goods is tanking

Photo by Mark Kolbe/Getty Images

Activity levels across Japan’s massive manufacturing sector contracted in March.

The latest flash manufacturing purchasing managers’ index (PMI) from Nikkei-Markit fell by one point to 49.1 during the month, marking the first time since April last year that activity levels had declined.

A reading of 50 is deemed neutral. At 49.1, it indicates activity levels deteriorated, albeit modestly.

The flash reading is based on the responses from 85-90% of surveyed firms, with Markit scheduled to release the final PMI report early next month.

Here’s the breakdown of movements in the internal components that make up the headline index. The word “decrease” features heavily, underlining the deterioration in activity levels.

Amy Brownbill, economist at Markit, suggests that declining international demand was a major factor behind the weak result.

ÔÇťOperating conditions at Japanese manufacturers deteriorated in March. Production and new orders both contracted, with output decreasing for the first time in nearly a year. This suggests industrial production will continue to fall,” said Brownbill.

“One of the key drivers behind the decline in total new work was a slump in international demand, as new export orders decreased at the sharpest rate in over three years. As a result, goods producers cut back on input buying and were less confident in hiring additional workers.”

The decline in external demand mirrors persistent weakness in Japanese trade data of recent months. In February exports contracted by 4.0% from 12 months earlier, the fifth annual decline recorded in a row.

In the Bank of Japan’s most recent monetary policy statement, the bank warned that “sluggishness is expected to remain in exports”.

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