Factory activity in Japan hits lowest point since 2020, economic concerns mount

In February 2024, Japan's factory activity experienced its most rapid decline over three years due to diminishing demand. The preliminary Japan Manufacturing Purchasing Managers' Index (PMI) from au Jibun Bank dropped to 47.2, down from January's 48.0, signalling ongoing contraction in private sector business operations.

February marked the ninth consecutive decline in business activity, representing the most significant contraction since August 2020, as reported by au Jibun Bank. The manufacturing sector in the country experienced ongoing deterioration in operating conditions throughout the month.

au Jibun Bank stated, "Both output and new orders fell at sharper rates, amid reports of deteriorating demand conditions in both domestic and international markets."

In response to the difficult market conditions, manufacturers have continued to decrease their workforce for the second consecutive month, marking the sharpest decline since January 2021. This concerning trend follows a recent report indicating a 7.5 per cent drop in Japan's manufacturing output for January compared to the previous month, as per official statistics.

Moody's Analytics noted that Japanese manufacturers face an incredibly challenging outlook, citing a significant slowdown in global demand for Japanese goods alongside weak domestic demand.

As Asia’s largest aluminium importer, Japan sets the pricing tone for the entire region. The quarterly premiums it negotiates with global suppliers serve as a benchmark for aluminium shipments across Asia, influencing pricing in countries like South Korea, Taiwan, and Vietnam.

Recent economic data revealed that Japan slipped into a technical recession, experiencing an unexpected contraction in October-December. Consequently, Japan lost its position as the world's third-largest economy to Germany.

Despite the concerning economic indicators, Japan's benchmark index has continued its rally, reaching an all-time high last week. The Nikkei 225 index surpassed its previous record high from 1989, trading 1.73 per cent higher at 39,840.61 on the morning of March 1, 2024.

Au Jibun Bank expressed confidence in the outlook for output in the coming year, banking on hopes for broad manufacturing and economic recovery.