Japanese Manufacturing Activity Contracts, Business Confidence Declines

Japanese manufacturing activity contracted in February 2019, for the first time in 2.5 years.

This happened along with factories in the State of Sakura reducing production amid shrinking domestic and export orders. a private business survey showed on Thursday.

On the other hand, business confidence in Japan also deteriorated for the first time in 6 years, along with the increasing impact of the US-China trade war on the economies of countries that depend on Asian exports and global manufacturing.

The Flash Markit / Nikkei Japan Manufacturing Purchasing Managers Index (PMI) fell to 48.5 in February 2019 from the end of January at 50.3.

Meanwhile, the output component of the flash PMI index fell to 47.0 from 54.4 in January. This shows the fastest contraction since May 2016.

Meanwhile, level 50 is a limit figure indicating a manufacturing activity in a country to record expansion or contraction.

Meanwhile, the pessimism of Japanese business people is considered not surprising because of the global challenges that impact on Japanese manufacturing.

“The global challenges facing Japanese manufacturers are quite large such as a slowdown in China and a global trade cycle that is losing power. Japanese opportunities to enter a recession in 2019 will increase, “said Joe Hayes, economist at IHS Markit, as quoted by Reuters on Thursday (2/21/2019).

Meanwhile, total new orders from both domestic and foreign showed a sharper decline in demand than the previous month. Although export orders contract at a slightly slower pace, it cannot immediately quell doubts about the outlook for foreign demand.

The company also reduced purchases of raw materials and other inputs for the second month.

Meanwhile, the PMI survey was released one day after government data showed Japan’s exports fell the most in more than 2 years in January due to a drop in shipments to China.

Global trade has slowed over the past year as Washington and Beijing raise tariffs on each other. This also disrupted supply chains throughout the world. At the same time, economic activity is weakening in China and Europe.

Some economists also argue that if the United States and China do not quickly settle their trade differences, Japan has the potential to experience further weakness.

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