Asia's second largest economy just received some very good news

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Asia’s first indicator of manufacturing activity in October has just been released, and it’s a good ‘un.

According to the flash Japan manufacturing PMI gauge released by Nikkei-Markit, manufacturing activity in Asia’s second largest economy accelerated sharply in October, rising to 52.5, the highest level seen since March last year.

PMI’s are a diffusion index, and measure the change in activity levels across the sector over a one-month period. A reading of 50 is deemed neutral, meaning activity levels are unchanged from a month earlier. A figure above 50, such as the flash gauge for October, indicates that activity levels are expanding.

Fitting with the encouraging headline reading, the internals of the report were strong with output and new orders both expanding at a faster pace than September while new export orders and employment, having previously contracted, returned to growth.

All the surveys subcomponents are shown in the table below.

According to Amy Brownbill, economist at Markit, the rebound in October is indicative of improved operating conditions.

“Latest survey data indicated a marked improvement in operating conditions at Japanese manufacturers,” she wrote in a note following the PMI release.

“Production increased at the joint-sharpest rate since February and was marked in the context of historical data. Meanwhile, growth in total new orders accelerated to the highest in over one-and-a-half years, underpinned by a solid increase in international demand. Subsequently, both employment and buying activity rose during the month, offsetting the declines seen in September.”

This encouraging news follows the Bank of Japan’s quarterly Tankan report released earlier in the month – a survey on business sentiment – which revealed large Japanese firms plan to increase capital expenditure by 10.9% during the current fiscal year, the largest annual increase since 2006.

On Friday next week the bank will hold its latest monetary policy meeting with markets split on whether or not the bank will ease monetary conditions further amidst weak economic growth across the Asian region.

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