The manufacturing sector in Japan experienced the sharpest contraction in over a decade during the month of May even as the government declared a state of emergency, as demand dropped drastically due to the ongoing coronavirus pandemic. The final au Jibun Bank Japan Manufacturing PMI fell to a seasonally adjusted reading of 38.4 in May from 41.9 during March, the lowest reading seen since March 2009.

The contraction was driven by a sharp fall in output, new orders and backlog as the country went into shutdown mode to contain the spread of the coronavirus. The manufacturing sector is expected to experience further strain in the coming months as exports and external demand falter.

On a slightly positive note, the contraction in employment levels in the sector has eased off after the severe drop seen during April. However, conditions are unlikely to improve until demand for goods picks up, both within Japan as well as around the world.

According to economist at IHS Markit, Joe Hayes, “May survey data revealed that production volumes are falling at an even faster rate than in April. Anecdotal evidence from the survey showed that was the result of collapsing demand, which fell at the sharpest rate since the global financial crisis.”