Japan July flash manufacturing PMI falls to 49.2 as output, new orders fall

SINGAPORE (ICIS)–Japan’s manufacturing sector contracted in July for the first time in three months after the preliminary purchasing managers’ index (PMI) fell to 49.2 from 50.0 in June, au Jibun Bank said on Wednesday.

A PMI reading above 50 indicates expansion while a lower number denotes contraction.

This decline signals a marginal deterioration in Japanese manufacturing business conditions in June, attributed to a reduction in both output and new orders, au Jibun Bank said in a statement on Wednesday.

The fall in new orders was the most significant since February.

Despite an increase in employment levels, sustained declines in new orders resulted in spare capacity within the sector, and backlogs of work decreased at the sharpest rate in four months.

Input cost inflation remained high in July, accelerating to its fastest pace since April 2023.

Japanese consumer inflation rose in June, putting pressure on the Bank of Japan to raise interest rates further, official data showed on 19 July.

The Bank of Japan (BOJ) in March hiked interest rates for the first time in 17 years, ending eight years of negative interest rates.

The BOJ expects that the recent rise in energy prices and the phased removal of government subsidies designed to control inflation will likely accelerate the consumer price index (CPI) increase throughout the fiscal year 2025, offsetting the fading impact of previous import cost increases on consumer prices.

Core inflation excluding fresh food, the BOJ’s preferred measure, accelerated to 2.6% in June from 2.5% in May and from 2.2% in April.

“Going forward, the government plans to renew energy subsidy programmes from August to October to counteract the heatwave during the summertime,” Dutch banking and financial services firm ING said in a statement.

“This could lower the overall inflation figure, but as it is temporary, the Bank of Japan is not expected to be too concerned.”