Japan’s Manufacturing PMI Indicates Weak Business Conditions

According to a report provided by Markit Economics, Japan’s manufacturing PMI (purchasing managers’ index) came in at 49.3 in July 2016, compared to 48.1 in June. This was above the flash reading of 49. However, it didn’t meet Market expectations. July was the fifth consecutive month in which Japan’s manufacturing PMI showed contraction.

The weaker manufacturing PMI was mainly due to the fall in production volume and output. New orders also fell due to weaker domestic demand. Employment growth picked up marginally in Japan (EWJ) (DXJ) in July, but new export orders fell. The stronger yen (FXY) compared to the US dollar (UUP) weighed on export business.

Recently, the Bank of Japan increased its ETF (ETF) purchase program to stimulate growth in its economy. It said it would increase ETF purchases to an annual pace of 6 trillion yen from 3.3 trillion yen. It kept the interest rate unchanged at its policy meeting in July 2016.

The earlier stimulus provided by the Bank of Japan didn’t have much impact. The economy is continually moving toward deflation. The government and the central bank are taking more steps to accelerate the economy. The stronger yen is becoming a major obstacle for the country as Japan is an export-oriented country. The slowdown in overseas (ACWI) (VTI) demand is affecting Japan’s performance.

In the next part of this series, we’ll analyze the performance of India’s manufacturing PMI in July 2016.