Marcel Thieliant, Senior Japan Economist at Capital Economics, explains that while the Japanese manufacturing PMI weakened in February it remains near the highest it has been since 2014’s sales tax hike and consistent with strong gains in industrial output.
Key Quotes
“Meanwhile, the survey suggests that price pressures aren’t strengthening any further for now.”
“Today’s flash estimate of the manufacturing PMI revealed a drop in the headline index from 54.8 in January to 54.0 in February. However, this is still close to a four-year high. The “output” component is one of the best survey-based measures of activity in the sector and it dropped from 54.7 to 53.7, consistent with quarterly gains in industrial output of around 2% - broadly in line with Q4’s 1.8% q/q.”
“New export orders” fell rather sharply, from 57.4 to 54.0. However, the January reading marked an eightyear high and the current level is still consistent with export volumes growing by around 10% per annum. What’s more, the export climate index, a weighted average of the PMIs of Japan’s main trading partners, was the highest it has been since autumn 2014 last month and also suggests that external demand is holding up.”
“The employment component of today’s survey isn’t a great guide to actual developments in employment, not least because manufacturing only accounts for 16% of employment. For what it’s worth, the index edged up from 53.7 to an eleven-year high of 54.2 and points to job growth of around 1% per annum.”
“Finally, the survey suggests that price pressures aren’t strengthening any further. “Input prices” declined from 59.3 to 59.0 and suggests that the recent slowdown in input price inflation has further to run. “Output prices” dropped from 52.5 to 51.3 and suggests that consumer price inflation will remain just below 1% for now.”
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