A private survey released on Monday showed that the contraction of Japan's manufacturing activity in December has slowed down, with the decline in production and new orders stabilizing. The Bank of Japan's final December Manufacturing Purchasing Managers' Index (PMI) was 49.6, still below the 50.0 threshold for the sixth consecutive month, but an improvement from November's 49.0 and the preliminary 49.5, marking the smallest decline in three months.
Slower Decline in Output and New Orders
Standard & Poor's Global Market Intelligence analyst Usamah Bhatti stated: "As the decline in output and new orders slows, the overall data is closer to neutral." The production sub-index has contracted for the fourth consecutive month, although the rate of contraction has eased from the previous month. Manufacturers indicated that the decrease in new orders was the main reason for the drop in output.
Regarding new orders, there has been contraction for the 19th consecutive month due to weak demand in major domestic and overseas markets. Some companies attributed the weak orders to insufficient demand in the semiconductor market.
Employment Recovery and Cost Pressures
Notably, there has been positive change in the employment market. The employment figures in December reversed November's decline, reaching the highest level since April. Surveyed companies stated that labor shortages and preparation for future demand prompted them to increase hiring.
However, companies still face rising cost pressures. The growth rate of raw materials and labor costs reached the highest level since August, with a weak yen further driving inflation. To counter this challenge, companies raised product prices at the fastest pace in five months.
Manufacturers Remain Optimistic About the Future
Despite facing multiple challenges, manufacturers are confident about the future. They believe that the introduction of new products and mass production will drive business expansion. Analysts note that signs of stabilization in the manufacturing sector may provide some support for Japan's economic recovery.
Conclusion
Although Japan's manufacturing activity in December remains in the contraction zone, the downward momentum has weakened, and the upturn in employment coupled with manufacturers' optimism has injected positive signals into the industry. Future attention will be needed on the changes in external market demand and the impact of cost pressures on the manufacturing recovery.
