Japan’s economy nears stabilization as indicated by au Jibun Bank’s Japan PMI of 47.2 in August, up from 45.2 in July. The Purchasing Managers’ Index (PMI) continued to contract in August but has improved from 38.4 in May, which was an 11-year low amid the COVID-19 crisis. This is the highest score since February or in the post-COVID-19 era.
Manufacturing continued to recover and new orders have improved, although they remain below January and February levels. The pandemic, the slump in global demand and supply chains disruption have reduced the overall performance of Japanese manufacturers in August. Key metrics including manufacturing output, new orders, buy activity, employment and exports fell at a slower pace in August.
The pandemic is still severe in many countries and is impacting demand in both domestic and overseas markets. There is also indications of excess capacity as seen in a drop of work backlogs. Export sales of Japanese manufacturers also remain weak.
IHS Markit economist hopes as global economies normalise firmer customer demand will lead to the recovery of manufacturing activity in Japan in the months ahead.
Notably, purchasing declined but at a slower rate in August. Demand for inputs remained subdued but delivery times lengthened again. amid supply chains disruptions. Inventories of purchased goods decreased slightly after a steep drop in July, while finished inventories decreased significantly in line with efforts to match stocks with demand conditions which remain weak.
Prices charged by manufacturers dropped slightly in August from July as companies offered discounts to increase sales. However, input costs increased amid a rise in raw material prices.
Business sentiments have improved amid hopes of controlling the pandemic and easing market conditions but manufacturers still remained concerns about how long it will take for the economy to recovery, said the IHS Markit report.