Japan Manufacturing Index Shows Contraction for 1st Time in a Year

Tuesday, 29 Apr 2014 07:22 PM

 

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Japan's manufacturing activity contracted in April for the first time in more than a year, a survey showed on Wednesday, as companies cut production immediately following an increase in the national sales tax.

The Markit/JMMA Japan Manufacturing Purchasing Managers Index (PMI) fell to a seasonally adjusted 49.4 in April from 53.9 in the previous month.

The index fell below the 50 threshold that separates expansion from contraction for the first time since February 2013.

Prime Minister Shinzo Abe's government raised the national sales tax to 8 percent from 5 percent on April 1 to meet rising welfare costs.

Since the middle of last year, sales of apartments, houses, cars and durable goods have been rising. Consumers also stocked up on daily goods in the days leading up to the tax hike, but were expected to curb their spending in the weeks after the tax increase.

"As was expected, the implementation of the increase in the sales tax negatively impacted on Japanese manufacturing companies," said Amy Brownbill, economist at Markit.

"Output and new orders both fell for the first time in 14 months. In both cases, Japanese manufacturing companies linked the reductions to the increase in the sales tax."

The output component of the PMI index also fell to 46.2 from 54.2 in March, showing the fastest contraction since December 2012.

The index for new export orders, a measure of demand for Japanese exports, declined to 49.1 in April from 52.3 in the previous month, showing the first contraction in eight months.

The contraction in new export orders is an unhappy omen for the Bank of Japan and Abe's government, which were looking to strong trade performance in the second quarter to help offset the drop in consumer demand after the sales tax hike.

© 2014 Thomson/Reuters. All rights reserved.

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