Japan's manufacturing sector continues to strengthen

Photo by Andy Lyons/Getty Images

Japan’s manufacturing sector continued to strengthen in September, according to data released by IHS Markit today.

The group’s flash manufacturing Purchasing Managers Index (PMI) rose 0.4 points to 52.6, leaving it at a four-month high.

The PMI measures perceived changes in activity levels across Japan’s manufacturing sector from one month to the next. Anything above 50 signals that activity levels are improving while a reading below suggests that they’re deteriorating. The distance from 50 indicates how quickly activity levels are expanding or contracting.

The flash reading form IHS Markit, released one week before the final PMI report, is based off around 85-90% of survey responses and is generally a pretty accurate guide as to how the final figure will print.

So, at 52.6, the flash result indicates that activity levels improved at a faster pace in September, albeit marginally.

Fitting with the uptick in the headline PMI reading, most of the survey’s subindices strengthened from a month earlier.

Source: IHS Markit

Output rose to 53.5, leaving it at a four-month high, while new orders and new export orders — lead indicators on activity levels in the months ahead — also strengthened from the levels seen in August.

Fitting with improved demand, inventories of finished goods declined from one month earlier. Order backlogs were also also unchanged after falling modestly in August.

Despite the firm demand outlook, employment and stock purchases both grew at a slower pace.

There was also mixed news on inflationary pressures across the sector with prices for finished goods growing at a slower pace while those for raw materials increased at a faster rate.

Despite the mixed report card, Annabel Fiddes, principal economist at IHS Markit, said the result points to strengthening levels of production in the months ahead.

“Firms signalled stronger expansions in both output and new orders amid reports of firmer demand both at home and abroad,” she said following the release of the flash report.

“The strong end to Q3 bodes well for production in the coming months, with business confidence also perking up slightly since August.”

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