Japan's manufacturers enjoyed a strong start to the year

Photo by Keith Tsuji/Getty Images

The positive momentum in Japan’s manufacturing sector cooled slightly in March.

The Nikkei-IHS Markit “flash” manufacturing purchasing managers index (PMI) came in at 52.6, down from 53.3 in February.

It was the lowest reading since December last year.

Source: IHS Markit

The PMI measures 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 they’re deteriorating. The further away from 50 the PMI is, the faster activity levels are expanding or contracting.

The flash reading, 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.

This table from IHS Markit shows how individual components within the survey fared.

Source: IHS Markit

Mirroring the drop in the headline PMI, most of the internal components continued to improve, albeit at a slower pace than February.

Along with the deceleration in output, new orders, new export orders and order backlogs all grew at a slower pace. This, along with a build in stocks of finished goods, suggests that demand may be starting to cool after a strong start to the year.

Following the release of the Japanese PMI report, attention will now turn to the release of manufacturing PMI reports in the Eurozone and United States later on this evening.

Along with other data points, investors have been cheered by recent strength in global manufacturing activity, helping to bolster confidence that economic conditions are improving.

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