TOKYO- Japan’s manufacturing activity extended declines in July while growth in the service sector slowed, surveys showed on Monday, as weak demand and souring confidence weighed on business in the world’s third-largest economy.
The au Jibun Bank flash Japan manufacturing purchasing managers’ index (PMI) fell to 49.4 in July from 49.8 in June. The 50.0 index point threshold separates contraction from expansion.
New orders fell at the fastest pace since March while output and new export orders extended their falls, albeit at a slower pace.
“Demand conditions at private sector firms were less buoyant than in the previous survey period with latest data pointing to only a marginal increase in new orders,” said Usamah Bhatti, economist at S&P Global Market Intelligence, which compiled the survey.
The au Jibun Bank flash services PMI slumped to a seasonally adjusted 53.9 in July from 54.0 in the previous month, the weakest since January. The service sector saw the slowest growth in new businesses since January while employment reversed its growth trend.
Cost pressures in manufacturing continued to ease with input prices growing at the slowest pace since February 2021.
Output prices in both the manufacturing and service sectors gathered pace, with factories seen passing on higher costs to consumers for the first time since April.
Japan said on Friday its core inflation in June exceeded the central bank’s 2 percent target for the 15th month in a row but an index stripping away the effects of energy costs slowed, the first slowdown since January 2022.
The au Jibun Bank Flash Japan composite PMI, which combines readings for both manufacturing and service sector activity, was 52.1 in July, unchanged from June.
Meanwhile, Japan’s imposition of export controls on chip making tools to align with a US policy restricting China’s ability to produce advanced semiconductors is worrying some officials in Tokyo who believe a combative US approach may hamper coordination and needlessly provoke Beijing.
From this week, Japan is restricting 23 types of equipment, ranging from machines that deposit films on silicon wafers to devices that etch out the microscopic circuits of chips that could have military uses.
But, while the US referenced China 20 times in its October announcement targeting Chinese companies, Japan has chosen broad equipment controls not specifically aimed at its bigger neighbor.
“We feel an odd discomfort with how the US is doing this. There’s no need to identify the country, all you need to do is control the item,” a Japanese industry ministry official told Reuters. Japan can’t sanction countries unless they are involved in a conflict, the source added.
Japan’s trade and industry minister told reporters when announcing Japan’s measure in March that China was only one of 160 countries and regions that would be subject to controls and that Japan’s rules were not meant to follow the US
Even so, China has warned Japan to backdown .
Tokyo and Washington share concerns about China’s push for advanced technologies and in May agreed with other Group of Seven industrial democracies on “de-risking” from potential Chinese economic coercion.
However, differences in chip making equipment controls could test that unity, should either gain a competitive advantage over the other by allowing exports the other blocked.
“Each country is responsible for its own licensing policies, and on top of that it’s up to each country to enforce the licensing decisions that it undertakes,” said Emily Benson, the director of the trade and technology project at the bipartisan nonprofit Center for Strategic and International Studies in Washington.
