TOKYO (Reuters) – Japan’s factory activity shrank at the fastest pace in eight months in November as weak demand prompted companies to cut production, a private sector survey showed on Monday.
The final Purchasing Managers’ Index (PMI) at Jibun Bank in Japan slipped to 49.0 in November, the lowest level since March, from 49.2 in October. The index was unchanged from a flash reading and remained below the 50.0 threshold that separates growth from contraction for the fifth straight month.
“The performance of Japan’s manufacturing sector was poor in November,” said Usamah Bhatti of S&P Global Market Intelligence.
The new orders sub-index extended its contraction in November, but at a moderate pace from October. It remained below the profitability threshold for 50 and a half years. Reduced demand both in Japan and abroad were the main factors in the decline. New exports extended the decline for the 33rd month in a row.
Companies have also adjusted their production due to weak demand, especially in the semiconductor and automotive sectors. This led to a record drop in production since April. Employment also fell for the first time in nine months.
Input cost pressures, however, remain strong due to higher labor, logistics and raw material prices, especially from abroad. Producer price inflation was at its highest level since July.
“Companies have decided to increase selling prices at a stronger rate to protect margins,” Bhatti said.
Japanese government data showed on Friday that core consumer inflation in Tokyo accelerated in November and remained above the Bank of Japan’s 2% target, keeping alive market expectations for a near-term interest rate hike.
Despite subdued demand, manufacturers remained positive about their business outlook with confidence levels rising to a three-month high, bolstered by hopes for new product launches and a broad-based economic recovery, the survey showed.
