Things are looking better for Japanese manufacturers as foreign demand returns

Photo by Ian Walton/Getty Images

Things are starting to look a little brighter for the Japanese economy, the third-largest in the world behind the United States and China, after another tough year.

The value of Japanese exports and imports — though still lower than the levels of a year earlier — improved fractionally last month, according to new figures released by the government earlier today, and now it appears that conditions across the nation’s massive manufacturing sector are also picking up.

The Nikkei-Markit “flash” manufacturing purchasing managers’ index (PMI) rose by 1.3 points to 51.7 in October, marking the fastest improvement in activity levels seen since January.

The PMI measures changes in activity levels across Japan’s manufacturing sector from one month to the next. A figure above 50 indicates that conditions are improving while a sub-50 number suggests they are declining.

In a nutshell, the higher the number the better.

Source: Markit

The “flash” reading, as it is known, is released one week ahead of the final PMI figure, utilising responses from around 85% to 90% of firms surveyed.

It’s usually a pretty good guide as to what to expect when the final report is released.

Like the improvement seen in the headline PMI number, most of the surveys subindices were stronger in October than a month earlier.

This can be shown in the table below from Markit.

Of note, output and employment increased at faster rates than September while new orders and new export orders both expanded, hinting that the improvement seen in recent trade data may be a sign of things to come.

Offsetting that news, input and output prices continued to decline — suggesting persistent deflationary pressures across the sector — although they too were smaller than the declines seen a month earlier.

Amy Brownbill, an economist at Markit, notes that some of the improvement in October was due to a “strong expansion in foreign demand”.

“Production rose at the sharpest rate this year so far helped by a boost in sales, which have increased for the first time since January,” she noted.

“Data suggested that a strong expansion in foreign demand led to the rise in total new orders, as new exports rose at the fastest rate in nine months.

“Not surprisingly, goods producers were more confident to take on additional workers, with the rate of job hiring picking up to a two-and-a-half year high. Firms also benefitted from lower cost burdens, as input prices declined.”

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