| Actual | Previous | Revised | |
|---|---|---|---|
| Composite Index | 50.8 | 50.0 | 49.7 |
| Manufacturing Index | 48.9 | 48.8 | 48.9 |
| Services Index | 52.4 | 51.7 | 51.1 |
Highlights
Business conditions among Japan's manufacturing sector measured by a private sector survey were flat in January and stuck in negative territory after posting the first contraction in nearly two years in November as global growth is slowing and firms are passing higher costs on to customers.
The au Jibun Bank flash manufacturing purchasing managers' index (PMI) based on a survey conducted by S&P Global stood at a seasonally adjusted 48.9 in January, unchanged from a final 48.9 in December, when it fell further from 49.0 in November and 50.7 in October. It compares with 50.8 in September, 51.5 in August, 52.1 in July, 52.7 in June, 53.3 in May, 53.5 in April and 54.1 in March. It remains the lowest since October 2020 and well below 55.4 recorded in January 2022, when the Omicron storm hadn't had a full impact on the economy and Russia hadn't invaded Ukraine yet.
In line with lower production levels, firms cut back input buying at the fastest pace since April 2014, when excluding the initial pandemic related lockdown.
"That said, firms were reportedly hopeful that markets would recover over the course of 2023 and registered a stronger level of business confidence," S&P said."Meanwhile, the rate of input cost inflation sank to a 17-month low while firms raised their selling prices at the slowest pace since September 2021."
Business conditions in the services sector continued improving in January after picking up slightly in December, being nearly flat in November and expanding in the previous two months. The Japanese government's new travel discount program and eased Covid border control, both of which took effect in October, continued supporting the tourism industry and some retailers.
On a seasonally adjusted basis, the purchasing managers' index for the services sector rose to 52.4 in January from 51.1 in December after slipping to 50.3 in November from 53.2 in October. The latest level is above 52.2 in September, 49.5 in August and 50.3 in July. The index surged to 54.0 in June from 52.6 in May. The index is well above 50.7 recorded in April and 49.4 in March and recent lows of 44.2 in February and 47.6 in January recorded during the Omicron storm.
On the downside, employment levels in the services sector fell for the first time in a year and at the most pronounced rate since May 2020. In terms of prices, the rate of input cost inflation strengthened further in January, but firms raised their selling prices at the softest pace in five months. Concerned about pricing pressures, service providers showed the weakest level of business confidence in two years, S&P said.
The composite output PMI, which is calculated from both the manufacturing and services indexes, rose to 50.8 in January from a final 49.7 in December and 48.9 in November, popping just above the breakeven point of 50 after two months of contraction. It compares with 51.8 in October, 51.0 in September, 49.4 in August and 50.2 in July. The index remains below 53.0 in June, 52.3 in May, 51.1 in April but is above 50.3 in March, 45.8 in February and 49.9 in January 2022.
"Japan's private sector kicked off 2023 on a more positive note, as signaled by activity returning to growth territory in January," S&P said."However, similar to trends recorded over much of the past six months, a divergence between the manufacturing and services sectors has remained."
The au Jibun Bank flash manufacturing purchasing managers' index (PMI) based on a survey conducted by S&P Global stood at a seasonally adjusted 48.9 in January, unchanged from a final 48.9 in December, when it fell further from 49.0 in November and 50.7 in October. It compares with 50.8 in September, 51.5 in August, 52.1 in July, 52.7 in June, 53.3 in May, 53.5 in April and 54.1 in March. It remains the lowest since October 2020 and well below 55.4 recorded in January 2022, when the Omicron storm hadn't had a full impact on the economy and Russia hadn't invaded Ukraine yet.
In line with lower production levels, firms cut back input buying at the fastest pace since April 2014, when excluding the initial pandemic related lockdown.
"That said, firms were reportedly hopeful that markets would recover over the course of 2023 and registered a stronger level of business confidence," S&P said."Meanwhile, the rate of input cost inflation sank to a 17-month low while firms raised their selling prices at the slowest pace since September 2021."
Business conditions in the services sector continued improving in January after picking up slightly in December, being nearly flat in November and expanding in the previous two months. The Japanese government's new travel discount program and eased Covid border control, both of which took effect in October, continued supporting the tourism industry and some retailers.
On a seasonally adjusted basis, the purchasing managers' index for the services sector rose to 52.4 in January from 51.1 in December after slipping to 50.3 in November from 53.2 in October. The latest level is above 52.2 in September, 49.5 in August and 50.3 in July. The index surged to 54.0 in June from 52.6 in May. The index is well above 50.7 recorded in April and 49.4 in March and recent lows of 44.2 in February and 47.6 in January recorded during the Omicron storm.
On the downside, employment levels in the services sector fell for the first time in a year and at the most pronounced rate since May 2020. In terms of prices, the rate of input cost inflation strengthened further in January, but firms raised their selling prices at the softest pace in five months. Concerned about pricing pressures, service providers showed the weakest level of business confidence in two years, S&P said.
The composite output PMI, which is calculated from both the manufacturing and services indexes, rose to 50.8 in January from a final 49.7 in December and 48.9 in November, popping just above the breakeven point of 50 after two months of contraction. It compares with 51.8 in October, 51.0 in September, 49.4 in August and 50.2 in July. The index remains below 53.0 in June, 52.3 in May, 51.1 in April but is above 50.3 in March, 45.8 in February and 49.9 in January 2022.
"Japan's private sector kicked off 2023 on a more positive note, as signaled by activity returning to growth territory in January," S&P said."However, similar to trends recorded over much of the past six months, a divergence between the manufacturing and services sectors has remained."
Market Consensus Before Announcement
Business conditions among Japan's manufacturing sector is expected to remain in negative territory in January amid slowing global demand after the purchasing managers' index edged down to a seasonally adjusted 48.9 in December from 49.0 in November (the first contraction in nearly two years). The service sector PMI is seen supported by the government's travel discount program after rising to 51.1 in December and slipping to 50.3 in November.
Definition
The Japan Composite Purchasing Managers Index (PMI) is based on original survey data collected from a representative panel of companies based in the Japanese manufacturing and service sectors. The Composite PM is a weighted average of the Manufacturing Output Index and the Services Business Activity Index, and is based on original survey data collected from a representative panel of about 800 companies based in the Japanese manufacturing and service sectors. Survey responses reflect the change, if any, in the current month compared to the previous month. The flash index, usually released about a week before the final, gives a preliminary reading of conditions for the current month.
Description
Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the purchasing managers' manufacturing indexes, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.
