The latest data showed that Japan’s factory activity grew at the slowest pace in four months in June. The country’s economy was leveling out before Tokyo hosts the Olympic Games in July.
Moreover, activity for the private sector declined for a second straight month due to the weaker reading for manufacturing. It continued contracting in the services sector, clouding the outlook for second-quarter economic growth in the country.
Bank of Japan board members voiced hope in April, that the massive stimulus would stimulate Japan’s economic recovery. According to the board, domestic consumption potentially would provide a tailwind as accumulated savings get spent.
The au Jibun Bank Flash Japan Manufacturing Purchasing Managers’ Index (PMI) dropped to a seasonally adjusted 51.5 in June. Remarkably, it stood at 53.0 in May. The decline came due to a sharp fall in output.
Remarkably, output contracted at the quickest rate since last November. It underscored the pressure Japanese companies were suffering from restrictions in response to the health crisis.
According to Usamah Bhatti, an economist at IHS Markit, flash PMI data signaled a quicker deterioration in business activity.
He added that manufacturers faced disruptions to operating conditions from coronavirus restrictions and supply chain pressures.
The survey revealed that overall orders and export orders increased, but at a weaker pace than in May.
The au Jibun Bank Flash Japan Composite PMI dropped to 47.8 from 48.8
However, manufacturers’ optimism for the year ahead stayed largely unchanged on hopes that Japan’s delayed vaccine roll-out would lead to an easing of coronavirus restrictions and support an economic recovery.
The survey also highlighted severe conditions in the services sector, which saw activity decline for the 17th straight month, though at a slightly slower pace.
The au Jibun Bank Flash Services PMI index increased to a seasonally adjusted 47.2 from the previous month’s final of 46.5.
The au Jibun Bank Flash Japan Composite PMI dropped to 47.8 from May’s final of 48.8. Remarkably, it is calculated using both manufacturing and services.
At the April meeting, the Bank of Japan kept monetary settings intact and projected that inflation will miss its 2% target well beyond Governor Haruhiko Kuroda’s current term ending in 2023.
Japan’s economy dropped an annualized 3.9% in the first quarter. Many analysts anticipate any rebound to be modest in April-June as state of emergency curbs to combat the pandemic cool consumption.