TOKYO (Reuters) – Japan’s factory activity contracted at the steepest pace in 10 months in December as output and new orders slid on market uncertainty, a private-sector survey showed on Thursday.
The final au Jibun Bank Japan manufacturing purchasing managers’ index (PMI) shrank to 47.9 in December from 48.3 in November.
It was the weakest reading since the index hit 47.7 in February and stayed below the 50.0 threshold that separates growth from contraction for a seventh straight month.
“Demand was reported to be lower from key export clients based in China, Europe and North America, and from important sectors like electronics,” said Paul Smith, Economics Director at S&P Global Market Intelligence.
“Cost pressures nonetheless increased, with input price inflation rising to a three-month high amid reports of higher raw material costs, especially for imported goods.”
Main subindexes of output and new orders fell at the fastest pace since February over market uncertainty both in Japan and overseas.
The survey found electronics demand was especially weak, and some respondents pointed to sluggish investment activity.
Input prices grew at their fastest pace in three months due to higher raw material costs, which some respondents attributed to more expensive import costs caused by the weaker yen.
Output prices continued to rise in December but the pace of gains slowed to its weakest in over two years.
Manufacturers remained confident of a recovery in demand especially for products like semiconductors.
“Firms are confident that client destocking will soon end and that new product launches will help to support an upturn in production during 2024,” Smith said.
Japan’s government slightly raised its economic projections for this fiscal year to March from its previous estimates, but it forecast the economy to slow in the next fiscal year starting in April.
(Reporting by Kaori Kaneko. Editing by Sam Holmes)