TOKYO- Japan’s factory activity shrank at a slower pace in April as declines in output and new orders eased, a private-sector survey showed on Wednesday.
Inflationary pressure continued but firms found market demand was strong enough to allow them to raise output costs, the survey found.
The final au Jibun Bank Japan manufacturing purchasing managers’ index (PMI) rose to 49.6 in April from 48.2 in March, but was off the 49.9 reported in the flash PMI.
The index still stayed below the 50.0 threshold that separates growth from contraction in activity but it was the slowest contraction in eight months.
“The latest PMI data continued to paint a fairly subdued picture of Japanese manufacturing sector performance,” said Paul Smith at S&P Global Market Intelligence.
But a rise in the index suggested the sector is close to “stabilization in the near-term,” he said.
Both output and new orders slipped for an 11th straight month in April but the pace of falls eased.
Some firms reduced new orders, which weighed on production, while others preferred utilizing inventories rather than raising output, the survey showed.
New orders shrank due to sluggish demand, especially for autos while new export orders contracted due to low demand from key export markets such as China and the US
Input costs picked up as higher prices were seen in a variety of goods, especially metals.
Freight and logistics were cited as factors for inflation as well. Stronger input prices were behind the gains in output charges, the survey showed.
“Firms perceived that market demand was sufficiently strong to allow them to raise their own charges,” said Smith.
While the trend of a weak yen helps boost exports, it pushes up import costs, which adds to inflationary pressures and squeezes households spending.
Firms remained confident about the outlook as they expect sales to pick up and the global inventory cycle to pick up.
Japan’s exports grew for the fourth straight month in March driven by U.S.-bound car shipments, although business confidence at big firms soured amid a slump in the yen and signalled that a sure-footed economic recovery was some time away.
Ministry of Finance data out on Wednesday showed Japan’s exports rose 7.3 percent year-on-year in March, compared with 7.8 percent gain in the previous month and 7.0 percent growth seen by economists in a Reuters poll.
However, in terms of volume, Japan’s shipments fell 2.1 percent year-on-year in March, casting doubt about the strength of the export engine, a key driver of the economy.
Policymakers will be keen to see solid export growth picking up the slack of feeble demand at home, which will allow the Bank of Japan to continue normalizing monetary policy.
The trade data comes on the heels of a Reuters monthly poll that showed large companies’ business confidence slid in April, dragged down by cost-of-living pressures and shaky economic conditions in major market China.
The yen’s weakening to levels unseen since 1990 during the heyday of the asset-inflated bubble is lifting the cost of imports in a blow to household consumption, the survey showed.
The Japanese currency hit 34-year lows to the dollar beyond 154 yen this week, prompting repeated warnings from authorities that they stood ready to take action against speculative or destabilising currency moves.
