Nikkei Flash PMI data in May shows Japan manufacturing sector slips further into contraction

Data released earlier today showed that Japan's Nikkei-Markit flash manufacturing purchasing managers’ index (PMI) fell to 47.6 in May, marking the steepest contraction in activity levels since December 2012. Data compared to a reading of 48.2 in April.

Flash Japan Manufacturing Output Index fell to 46.9 (47.8 in April), falling at the fastest rate in over two years in May. Like the headline index, the details of the May report were equally dire. Except for the surveys’employment subindex, most of the major components contracted at a faster pace than March.

“Manufacturing conditions deteriorated at a faster rate mid-way through the second quarter of 2016, suggesting the aftermath of the earthquakes were still weighing heavily on goods producers. Both production and new orders declined sharply and at the quickest rates in 25 and 41 months respectively. One of the primary reasons behind the fall in total new orders was a marked contraction in foreign demand, which saw the sharpest fall in over three years. Goods producers were also less optimistic towards their hiring policies with the rate of job creation easing from April’s three-month record.” said Amy Brownbill, economist at Markit.

The fall in PMI has put fresh pressure on the government and central bank to offer additional economic stimulus. Economists also expect the Bank of Japan will ease monetary policy even further by July as a strong yen and still sluggish economy threaten its ability to meet its ambitious inflation target, a Reuters poll showed.