Operating conditions in Japan's manufacturing sector improved only slightly in July. Output contracted at a fractional pace, while new orders grew for the second month running but only modestly.
Subdued client demand due to the rise in the sales tax was linked by panellists to relatively weak market conditions. In contrast, new export orders rose for the first time in four months in July, with a number of companies citing new overseas project wins. Payroll numbers remained in growth territory for the twelfth month running, although the rate of expansion was marginal.
The Japan manufacturing Purchasing Managers Index (PMI) came at 50.5, down from 51.5 in June, signalling a weaker rate of improvement in overall operating conditions.
Manufacturers in Japan reported a fall in output from a previous month of growth during July. That said, the rate of contraction was only fractional. According to panellists, the increase in the sales tax was still having a detrimental effect on production levels.
Data suggested that muted domestic demand hindered overall new work wins, as new export orders rose for the first time since March.
Stocks of purchases declined for the first time since November 2013, with surveyed companies commenting on a slowdown in production leading to a fall in stock levels. Employment at manufacturers increased again in July, as has been the case since August 2013. The rate of increase was slight overall, and partly driven by higher workloads.
Amy Brownbill, economist at Markit, which compiles the survey said, "Latest PMI data indicated a subdued performance of Japan’s manufacturing sector, with output deteriorating and new orders growth slowing from June. According to panellists, the effect of the sales tax implemented earlier in the year is still having a negative effect on demand."
"The fall in output, however, was only fractional and with new orders, payroll numbers and new exports remaining just inside growth territory the sector have a platform to expand in the second half of the year."
