Japan: Caution over downside risks for manufacturing activity – Nomura

Analysts at Nomura note that the Japanese manufacturing PMI for July came in at 51.6, down 1.4pt from the June reading and this result hints at a slowdown in manufacturing activity.

Key Quotes

“Among the five component indices, four exerted a drag on the headline PMI: the output index fell 1.2pt to 52.4, the new orders index fell 2.6pt to 50.1, the stock of items purchased index fell 2.5pt to 47.4, and the employment index fell 0.9pt to 51.6. The only component index making a positive contribution was the supplier delivery times index, which fell 1.3pt to 43.8 (a decline in this index pushes up the headline index).”

“Meanwhile, the new export orders index (which is not included in the calculation of the manufacturing PMI) rose 0.8pt m-m, but with the bounce-back from the month-earlier decline quite weak, the absolute reading came to 49.7, below the reading of 50 which represents the dividing line separating an overall rise in orders from an overall decline in orders. This result suggests an ongoing decline in orders.”

“Caution over downside risks for manufacturing activity

While today’s July manufacturing PMI release would appear to reflect some impact from the abovementioned heavy rainfall, we still think the result is on the weak side overall.

We expect the global economy to gradually decelerate while evading any drastic slowdown, and we expect Japanese exports to follow a similar path.

We note that Japanese economic growth is readily impacted by external demand trends, and we are also keeping an eye on such risk factors as US trade policy and a sharp slowdown in emerging market economies. Accordingly, we advise caution over downside risks for manufacturing activity.”