Japan’s factory activity contracts most in over three years

Japan’s February factory activity shrank at the fastest pace in more than three years on the back of weakening demand.

The au Jibun Bank’s flash Japan manufacturing purchasing managers’ index fell to to 47.2 in February, compared with January’s 48.0 reading, indicating continued contraction in private sector business activity.

The reading signals a ninth consecutive deterioration in business activity and the strongest contraction recorded since August 2020, according to au Jibun Bank.

Operating conditions in the country’s manufacturing sector continued to deteriorate in February.

“Both output and new orders fell at sharper rates, amid reports of deteriorating demand conditions in both domestic and international markets,” au Jibun Bank said in a statement.

Given the challenging market environment, manufacturers also reduced their employment levels for the second month in a row and at the steepest rate since January 2021.

The disappointing data comes a day after Japan’s manufacturing output recorded a 7.5% decline in January from the prior month, according to official statistics.

The outlook for Japanese manufacturers appears “incredibly challenging,” Moody’s Analytics wrote in a note. The agency highlighted global demand for Japanese goods has slowed considerably in recent months, compounding with weak domestic demand.

Recent data also showed Japan’s economy dipped into a technical recession after unexpectedly contracting again in the October-December period. As a result, the country lost its spot as the world’s third-largest economy to Germany.

In spite of the slew of weak economic data, Japan’s benchmark index has continued to extend its rally after surging to an all-time high last week.

Last week, the Nikkei 225 surpassed its previous record high of 38,915.87 reached in 1989. The index was trading 1.73% higher at 39,840.61 in Friday morning trading.

Au Jibun Bank also maintained confidence in the year-ahead outlook for output amid hopes of a broad-based manufacturing and economic recovery.