Japan’s Feb factory activity shrinks most in over 3 years on weak demand – PMI

TOKYO (Reuters) – Japan’s factory activity shrank at the fastest pace in over three-and-a-half years in February, a private-sector survey showed on Friday, as weakening demand worsened the economic outlook.

The final au Jibun Bank Japan manufacturing purchasing managers’ index (PMI) shrank to 47.2 in February from 48.0 in January. It was the ninth straight month of contraction and the fastest pace of decline since August 2020.

The index has remained below the 50.0 threshold that separates growth from contraction in activity since June.

“Depressed demand in domestic and international markets continued to weigh on sector performance,” said Usamah Bhatti at S&P Global Market Intelligence.

Both production and new orders, the two main subindexes of the PMI, declined at the fastest pace in a year. Respondents cited factors such as weak sales demand at home and overseas as well as production delays due to machinery shutdowns.

Export sales extended their falls and have remained in contraction for two years. Weak sales in China was the main factor behind slumps in exports, while those from the U.S. and Europe were also subdued.

Employment shrank at the steepest pace since January 2021 as firms were reluctant to replace voluntary leavers.

Manufacturers also reduced purchasing activity for the 19th straight month in February due to a lack of new orders and high inventory levels.

Delivery times extended to their longest in a year on shipping delays due to disruption in the Red Sea and the impact of Japan’s Noto earthquake on New Year’s Day.

Price pressures remained strong on higher raw material, energy, labour, oil and transport costs. But the rate of input cost inflation eased to the lowest in seven months.

Despite the gloom, manufacturers’ confidence for the year-ahead remained strong supported by hopes that production and the economy will broadly recover.

Japan fell into a recession in the final quarter of last year, losing its title as the world’s third-biggest economy to Germany.

(Reporting by Kaori Kaneko. Editing by Sam Holmes.)