A recently conducted private-sector survey revealed that Japan’s factory activity contracted at a reduced rate in August, mainly attributed to a resurgence in both output and new orders.
The final au Jibun Bank Japan Manufacturing Purchasing Managers’ Index (PMI) climbed to 49.8 in August from 49.1 in July, surpassing the 49.5 initial estimate. Despite this improvement, the index remained below the growth threshold of 50.0 for the second consecutive month.
In August, the output sub-index saw growth to its highest level since May 2022, rebounding from a contraction in July. The uptick was supported by the recovery in new orders and increased production of new items.
Although new orders experienced a slight decline due to subdued demand in domestic and international markets, the pace of reduction slowed compared to July. Some companies cited issues such as excess inventory and reduced investments from clients.
Diminished demand from key export destinations like China and South Korea led to a decline in new exports, marking the lowest level in five months.
While the weakened overseas demand poses concerns for policymakers, the rebound in consumption has bolstered the economy, reinforcing expectations that the Bank of Japan will continue to incrementally raise interest rates as it gradually phases out a lengthy period of substantial stimulus measures.
