Strong External Demand Sends Japan’s Manufacturing PMI Higher in July
Aiswarya Gopan • 2 min read
Manufacturing activity across Japan registered an uptick during the month of July, supported by an increase in output and new orders amid strong economic recovery across the nation’s key trade partners spurring external demand. The final au Jibun Bank Japan Manufacturing PMI surged to 53.0 for July from the seasonally adjusted reading of 52.4 for June, and coming in better than the flash reading of 52.2.
Robust output across electronics and automotive industries as well as the increased demand for semiconductors supported the strong improvement in business activity across Japan’s manufacturing sector. Production volumes continued to grow for the sixth consecutive month in July while new orders received also rose for the seventh straight month for the period.
However, the pace of growth in production remained modest as manufacturing firms faced challenges owing to difficulties in sourcing raw materials. Meanwhile, input cost inflation touched the highest level seen since September 2008 due to the higher costs for raw materials, also causing businesses to pass on some of these costs to consumers.
Economist at IHS Markit, Usamah Bhatti, notes, “Beyond the immediate future, Japanese manufacturers remained confident that output would rise over the coming 12 months, although sentiment was at its lowest for three months. Firms were hopeful that a successful vaccine programme would help to end the pandemic and reduce pressure on supply chains, boosting demand across the manufacturing sector.”
Impact on the JPY
The Japanese yen is holding steady against the US dollar in early trading on Monday, mostly unaffected by the release of the PMI figures. Lately, economic data out of Japan has been unable to drive much price action in the safe haven currency, which has seen more volatility owing to the market sentiment.
The JPY enjoys support from rising concerns that global economic recovery could be delayed due to the latest resurgence in COVID-19 infections around the world. Meanwhile, a downbeat outlook about Japan’s economic recovery has also shifted the focus towards market sentiment for traders of this currency lately.