Japan manufacturing activity shrinks for first time in a year

PUBLISHED : Wednesday, 30 April, 2014, 9:48am
UPDATED : Wednesday, 30 April, 2014, 9:48am

Japan’s manufacturing activity contracted in April for the first time in more than a year, a survey showed on Wednesday, as companies cut production immediately following an increase in the national sales tax.

The Markit/JMMA Japan manufacturing purchasing managers index (PMI) fell to a seasonally adjusted 49.4 from 53.9 the previous month.

The index fell below the 50 threshold that separates expansion from contraction for the first time since February last year.

Prime Minister Shinzo Abe’s government raised the national sales tax to 8 per cent from 5 per cent on April 1 to meet rising welfare costs.

Since the middle of last year, sales of apartments, houses, cars and durable goods have been rising. Consumers also stocked up on daily goods in the days leading up to the tax hike but were expected to curb their spending in the weeks after the tax increase.

“As was expected, the implementation of the increase in the sales tax negatively impacted on Japanese manufacturing companies,” Amy Brownbill, a Markit economist, said.

Output and new orders both fell for the first time in 14 months. In both cases, Japanese manufacturing companies linked the reductions to the increase in the sales tax
Amy Brownbill, Markit

“Output and new orders both fell for the first time in 14 months. In both cases, Japanese manufacturing companies linked the reductions to the increase in the sales tax.”

The output component of the PMI index fell to 46.2, from 54.2 in March, showing the fastest contraction since December 2012.

The index for new export orders, a measure of demand for Japanese exports, declined to 49.1 in April from 52.3 in the previous month, showing the first contraction in eight months.

The contraction in new export orders is an unhappy omen for the Bank of Japan and Abe’s government, which were looking to strong trade performance in the second quarter to help offset the drop in consumer demand after the sales tax hike.

Meanwhile, government data showed on Wednesday that Japanese industrial output rose 0.3 per cent in March from the previous month, showing factory activity held steady before the increase in the sales tax.

The rise in industrial output, a key gauge of broader economic activity, fell short of economists’ median estimate of a 0.5 per cent gain, data from the Ministry of Economy, Trade and Industry showed. It followed a 2.3 per cent drop the previous month.

Manufacturers surveyed by the ministry expect output to fall 1.4 per cent in April but increase 0.1 per cent in May, the data showed.

The ministry stuck to its assessment that industrial output is picking up.

 

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