Japan’s factory activity shrinks, squeezed by costs – PMI

TOKYO (Reuters) – Japan’s factory activity shrank for a third straight month in August, a survey showed on Friday, as manufacturers were squeezed by cost pressures from raw material inflation and rising wages.

The yen has come under pressure in recent months, weighed by the Bank of Japan’s ultra-loose monetary policy, which has in turn inflated the costs of imported goods.

The final au Jibun Bank Japan manufacturing purchasing managers’ index (PMI) was at 49.6, unchanged from the previous month and slightly down from the flash reading of 49.7. It was the third month the index has come in below the 50.0 threshold that separates growth from contraction.

Output and new orders, which contribute the most to the headline figure, remained in contraction, although the reduction in orders was slower than in July, data by S&P Global Market Intelligence showed.

Input cost inflation re-accelerated for the first time since September, while output price inflation slowed, squeezing companies’ profits.

Rising wages also fuelled cost pressures, according to the survey, with the subindex for employment showing the weakest growth in 29 months.

“Firms noted that the filling of existing vacancies due to staff shortages were offset by a number of voluntary resignations as staff looked for higher paying jobs,” said S&P’s Usamah Bhatti.

The soft PMI reading comes a day after government data showed Japanese factory output falling more than expected in July, dented by weak demand for capital goods and electronic devices in China. China’s official PMI on Thursday showed contraction for a fifth month in August.

Japanese manufacturers’ future output expectations remained positive but growth was the weakest in six months, the S&P data showed.

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