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Manufacturing production falls sharp in Japan

Christian Fernsby ▼ | May 4, 2020
Japan's manufacturing downturn intensified during April, according to the latest PMI data, as production volumes fell at an even faster pace than seen in March as the coronavirus disease 2019 (COVID-19) pandemic caused a further severe drop in domestic and overseas demand.
Japan factory
April   Japan factory
Supply chain dislocations were once again apparent as vendors shut down their operations, causing shortages of inputs.

Topics: Japan

Employment fell at the fastest rate since June 2009 as lower operating requirements caused some firms to cut their workforces.

Meanwhile, expectations slumped to their most negative sine the index began in 2012.

The headline au Jibun Bank Japan Manufacturing Purchasing Managers’ Index™ (PMI)® – a composite single-figure indicator of manufacturing performance – dropped to an eleven-year low of 41.9 in April, down from 44.8 in March, to signal a sharp decline in business conditions across the goods-producing sector.

Latest survey data pointed to a severe reduction in Japanese manufacturing production that was the strongest since March 2009.

According to panel members, output cuts were a consequence of the global COVID-19 pandemic, which had led to a collapse in demand and factory shutdowns.

Market group data revealed sharper downturns among consumer, intermediate and investment goods makers.

Order books plunged deeper into contraction at the start of the second quarter.

Latest data signalled the most severe drop in sales for over 11 years amid reports of order cancellations.

Key clients suspending their operations also had a strong impact on workloads, according to respondents.

Demand from overseas plummeted during April, outpacing the sharp decline recorded in March by a large margin.

Overall, new export orders fell at a rate not seen since the height of the global financial crisis in early 2009.

Declines were overwhelmingly attributed to the global COVID-19 pandemic, which had caused external demand to collapse.

Looking ahead, survey respondents expect conditions to remain highly challenging over the next 12 months.

Japanese manufacturers predict production volumes to fall sharply across the coming year, with negative forecasts primarily linked to uncertainty surrounding COVID-19.

A number of firms were uncertain as to when the economy would begin to recover, which weighed heavily on sentiment.

As a result of lower production requirements, employment and purchasing activity were reduced during April.

Staffing numbers fell at the fastest pace since mid-2009 amid reports of restructuring.

In line with lower input demand, buying levels were cut substantially.

Manufacturing supply chains remained under intense pressure in April as the global COVID-19 pandemic severely disrupted international shipments.

There were widespread reports that vendors had shut down or operated below capacity.

Overall, supplier performance deteriorated at the fastest rate in nine years.

Lastly, input prices fell at the fastest rate since September 2016 amid lower oil prices.

Output charges were subsequently cut for the third month running.