TOKYO: The Japan Business Activity Index has come at 48.5 in February, down from 51.3 in January. Although only moderate, the rate of contraction was quicker than the average since the increase in the sales tax was implemented in April 2014.
Meanwhile, latest data highlighted an improvement in operating conditions in the Japanese manufacturing sector. The Composite Output Index posted at the 50 no-change mark in February, following a moderate rise in overall business activity in January. Meanwhile, new orders at Japanese goods producers rose for the ninth consecutive month in February, but the latest increase was the lowest in this sequence.
The negative side of the depreciation of the yen was still felt at Japanese manufacturers, as purchasing costs rose sharply due to a steep hike in raw material prices. Output charges, on the other hand, declined for the first time since August 2014, but at only a slight pace. Despite reports of weak demand conditions, Japanese services firms remained positive in regards to activity over the next year, with business sentiment the strongest since September 2014. Firms linked optimism to expectations of stronger employment growth and an anticipated expansion in new business.
Amy Brownbill, economist at Markit, which compiles the survey, said, “Business activity contracted in February, while new orders growth slowed to a marginal pace signalling a general weakening of business conditions in the Japanese service sector. Subsequently, service sector providers reduced their staff numbers for the first time since June 2014 in February.” “Contrasting with the underwhelming business conditions highlighted by the latest data, expectations regarding business activity over the next 12 months remained positive, with the degree of sentiment the strongest since September 2014.”
