Japan’s Economy on Fragile Ground as Manufacturing Contracts for Fifth Straight Month

In March, Japanese manufacturing activity recorded its fifth consecutive month of contraction as production and new orders continued to face pressure. According to a survey conducted on Friday (24/3/2023), Japan’s economic recovery can be described as fragile due to the slowing global demand. However, the service sector has shown signs of expansion for seven straight months and grew at its fastest pace in over nine years, indicating that the pressure from the Covid-19 pandemic has eased.

Jibun Bank’s flash Japanese manufacturing purchasing managers’ index (PMI), launched from Refinitiv, was recorded at 48.6 in March, seasonally adjusted, up from the final 47.7 in the previous month. The index has remained below the 50 level that separates contraction from expansion for five consecutive months.

Usamah Bhatti, an economist at S&P Global Market Intelligence, which compiled the survey, said that “manufacturing firms hinted at a further dismal number at the end of the first quarter, with continued declines in both production and new orders.”

The sub-index data also revealed that factory output and new orders fell for the ninth straight month, but the pace of contraction eased compared to February.

On Thursday (23/3/2023), the Reuters Tankan survey revealed that major Japanese manufacturers remain pessimistic about business conditions for the third straight month for March, reflecting concerns about the slowing global growth that could harm the country’s export engine.

The State of Japan’s Exports and Imports

 Japan’s exports and imports have not been enthusiastic recently, according to the data above. Japanese exports have been on a downward trend since September 2022, despite rising in February 2023. Meanwhile, imports have continued to decline since October 2023.