What Japan’s Manufacturing Suggests for Its Economy

Japan’s manufacturing PMI in June

Japan’s manufacturing PMI (purchasing managers’ index) stood at 52.4 in June 2017 compared to 53.1 in May. It met the preliminary market estimate of 52. The PMI expanded in June. A level above 50 indicates expansion in manufacturing activity, while a level below 50 indicates contraction in manufacturing activity.

What Japan’s Manufacturing Suggests for Its Economy

The improvement in June’s manufacturing PMI was mainly due to a stronger improvement in production output and new orders. However, new orders and export orders fell. Domestic demand improved while overseas (VTI)(VEU)(ACWI) demand fell in June. Due to this change, June’s manufacturing PMI showed weaker performance than May.

However, business confidence remained optimistic. The improving demand outlook in the country (EWJ)(DXJ) mainly drives business sentiment. Recently, we saw that Japan’s services PMI improved in June 2017.

Major central banks across the developed world are raising their tone for a hawkish stance in the near future. The Bank of Japan (BoJ) introduced various stimulus programs in the past to revive the economy from a continued slowdown. Now, if the Japan’s economic indicators will show improved figures, then we might expect a hawkish stance from the BoJ.

Performances of ETFs

The iShares MSCI Japan (EWJ), which tracks the performance of Japan, rose nearly 1.0% in June 2017. The Nikkei 225 index returned nearly 2.9% in June 2017. The WisdomTree Japan Hedged Equity ETF (DXJ) rose nearly 2.5% during the same month.

In the next part of this series, we’ll analyze UK’s manufacturing PMI for June 2017.