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Japan’s manufacturing Purchasing Manufacturers’ Index (PMI) declined for the fifth straight month in a row in July, albeit at a pace slower than that in June. However, new export orders contracted at the fastest pace in 3-1/2 years, a sign that a rising yen is hurting export business.
The Markit/Nikkei final manufacturing PMI rose to 49.3 in July, up from 48.1, thought still remaining below the 50-point mark that separates expansion from contraction in the manufacturing sector. However, the reading was slightly above the flash estimate of 49.0 released July 22.
Moreover, the sub-index for new export orders came in at 44.5, compared with a preliminary reading of 44.0, but overseas demand fell at the fastest pace since December 2012.
"Manufacturing conditions in Japan deteriorated at a weaker pace at the start of the third quarter of 2016. Both production and new orders declined at slower rates in July, while employment growth picked up slightly, albeit remained marginal overall," said Amy Brownbill, Economist, Markit.
In addition to weakness in overseas demand, Japan’s manufacturing has suffered in the wake of life-threatening earthquakes in the recent past. Also earthquakes since April have devastated the country’s automotive and electronics industries, two sectors that are heavily tied to export demand.
Meanwhile, recent appreciation the Japanese yen has led to concerns among the policymakers and other market participants because this tends to weigh on exporters' earnings and make Japanese products less competitive overseas.
