Japan’s Manufacturing Sector Contraction Eases in October

Manufacturing activity across Japan continued to decline into October – marking the 18th consecutive month of contraction, amid a resurgence in coronavirus cases around the world. The au Jibun Bank Flash Japan Manufacturing PMI edged slightly higher to 48 from last month’s final reading of 47.7, but remained under the 50-threshold indicating contraction.

On a positive note, however, this has been the slowest pace of decline seen so far this year. The improvement was driven by an uptick in new orders as well as overall output. However, with most parts of the world battling the second wave of the pandemic, there are concerns that this improvement may be short-lived.

Even as the pace of contraction in the manufacturing slows down, the Japanese services sector still seems to be in trouble, contracting at a faster pace in October than in the previous month. The au Jibun Bank Flash Services PMI fell to 46.6 from September’s final reading of 46.9.

Principal economist at IHS Markit, Bernard Aw, observes, “The Japanese private sector started the fourth quarter on a weak footing. The recovery is slow-going and could remain so in the coming months as a global resurgence of COVID-19 cases could weigh on Japanese economic activity, particularly in the external-facing sectors.”