Japan July final manufacturing PMI slows to eight-month low as exports falter

TOKYO,(Reuters) – – Japan’s manufacturing activity grew in July at the slowest pace in eight months as export demand weakened, a private survey showed on Tuesday.

The Markit/Nikkei Japan Final Manufacturing Purchasing Managers Index (PMI) dipped to 52.1 in July on a seasonally adjusted basis, slightly weaker than a preliminary reading of 52.2 and a final 52.4 in the previous month.

But despite the somewhat softer reading, the headline PMI index remained above the 50 threshold that separates expansion from contraction for the 11th consecutive month.

“The expansion of the Japanese manufacturing sector was undermined somewhat during July by a slump in new export order growth, which led to the lowest rises in both output and new orders since the final few months of last year,” said Paul Smith, senior economist at IHS Markit, which compiles the survey.

The final reading for new export orders was 50.9, above the flash reading of 50.0 but a marked slowdown from 53.4 in June.

But overall new orders did not soften as sharply, suggesting a pickup in domestic demand that may have partly offset the sudden weakness overseas. Domestic demand has been a soft spot in the economy.

The output index fell to 51.4, unchanged from the flash reading and lower than a final 52.2 in June.

Still, manufacturers were the most optimistic about future output in five years, citing an ongoing boom in global electronics demand and additional business expected in the lead up to the 2020 Tokyo Olympics.

Companies continued to add staff to handle increased orders, and were able to pass on some of their higher input costs by raising the prices of their goods slightly.

While Japan’s economy is expanding at a modest pace and the labor market is tightening, inflation has been stubbornly weak.

Government data on Monday showed companies expect output to grow at a slightly slower pace in July and then accelerate in August, which has given economists reason to be optimistic that industrial production will continue to expand at a healthy pace.