Japan's factory activity contracted at the slowest pace in five months in July, in a sign that pressures on manufacturers were easing somewhat and raising hopes that the worst impact from the coronavirus pandemic was over. Gross domestic product data out later this month is expected to show the world's third-largest economy had contracted by more than 20% on an annualised basis in the second quarter as the health crisis hit demand.
The final au Jibun Bank Flash Manufacturing Purchasing Managers' Index (PMI) rose to a seasonally adjusted 45.2 in July from 40.1 in June and a preliminary reading of 42.6. "The headline PMI recovered some of the ground lost in the second quarter," said Tim Moore, director at IHS Markit, which compiles the survey.
"Manufacturers... cited a boost from easing emergency measures at home, alongside signs of recovery across the automotive supply chain and the restart of economic activity in key export destinations." The survey showed manufacturers saw demand capacity fall less than before, with total output and new orders contracting at their slowest pace in five months.
That boosted hopes that a recovery will pick up steam even as a resurgence in global infections threatens more disruptions to supply chains and consumer demand. Future output increased at the fastest pace in six months, with about a third of surveyed companies expecting an increase in production during the next 12 months, while about a fifth foresaw a decline.
"Production of consumer goods was close to stabilisation in July, despite a headwind from weaker orders from abroad," IHS Markit's Moore said. "Capital goods was the worst-performing segment for export sales, highlighting that reduced global investment spending and constrained trade flows are holding back the Japanese manufacturing sector."