Japan’s Manufacturing Sector Drops in January following Exports Decline

Export orders dropped at the fastest rate in Japan in over 2 years, resulting in a hampered growth of the manufacturing sector. Companies also reduced production, according to the preliminary business survey on Thursday.

Japan ranking third as the biggest economy is likely to have rising concerns about sluggish growth with the continuous China-US trade war. Possibility dropping to a recession increases for this year amid the cooling demand domestically and globally and another planned tax hike in October based on last week’s poll of Reuters.

The Manufacturing Purchasing Managers’ Index (PMI) by Flash Markit/Nikkei shows a decline to 50.0 in January on a seasonally adjusted basis from the final figure of 52.6 in December. The 50 mark separates improvement from a decline on a monthly basis.

With a steeper decline in export orders, manufacturer’s reduced production for the first time since July 2016. Over six years, the business confidence remained in a positive area.

The pessimistic outlook in the manufacturing sector promotes nearing growth period for two and a half year, according to an economist at IHS Markit, Joe Hayes.

New orders, being a top indicator of future trading, proposes a weakened activity in the coming months. Total new orders expected the decline to 46.1 from 49.1 in December, which was the steepest rate of decline since July 2016.

On Wednesday, the exports data of Japan was the biggest drop in more than two years.

Moreover, the rising concern in the Sino-US trade war affects the supply chain on both ends of the Pacific, especially electronics, considering Japan as export led industrialization that is sensitive to global demand changes.

The BOJ reduced the inflation forecast and sustained massive stimulus policy on Wednesday with rising pressure on the economy and putting at risk to yield sustainable growth. At the same time, the International Monetary Fund revised lower its global growth forecast. Similarly, China also showed the weakest growth in almost 30 years and presumed to further cool down this year.