Japan’s factories flatline in January as exports fall most in 2-1/2 years-flash PMI

January 24, 2019

TOKYO (Reuters) – Japan’s manufacturing growth stalled in January as export orders fell at the fastest pace in 2-1/2 years and companies cut back production, a preliminary business survey showed on Thursday.

The first, grim snapshot of the world’s third-largest economy in the new year is likely to heighten worries about slowing global growth as the Sino-U.S. trade war grinds on.

Chances had already been growing that Japan could slide into a recession this year, with cooling demand at home and abroad and a sales tax hike planned for October, according to a Reuters poll of economists last week.

The Flash Markit/Nikkei Japan Manufacturing Purchasing Managers’ Index (PMI) fell to 50.0 in January on a seasonally adjusted basis from a final 52.6 in December.

The 50-mark separates contraction in activity from expansion on a monthly basis.

Facing a sharper slide in export orders, manufacturers scaled back production for first time since July 2016. Business confidence fell to the lowest in over six years, though it remained in positive territory.

The findings “bode ill for Japan’s manufacturing sector, indicating the end of a near two-and-a-half-year growth run,” said Joe Hayes, economist at IHS Markit, which compiles the survey.

New orders, a leading indicator of future activity, suggested further factory weakness in coming months.

Total new orders contracted, with a gauge of export orders falling to 46.1 from 49.1 in December, the sharpest rate of decline since July 2016.

Japan’s export-oriented economy is sensitive to changes in global demand, particularly in neighboring China, its largest trading partner. The Sino-U.S. trade war has disrupted supply chains on both sides of the Pacific, particularly for electronics.

Data on Wednesday showed Japan’s exports in December fell the most in more than two years.

China on Monday reported its weakest economic growth in nearly three decades, and it is expected to cool further this year. The International Monetary Fund has also trimmed its global growth forecasts.

The Bank of Japan cut its inflation forecasts and maintained its massive stimulus policy on Wednesday as pressure on the economy mounts, threatening years of effort to foster durable growth.

(Reporting by Tetsushi Kajimoto; Editing by Kim Coghill)