Japan's factory activity returns to contraction in Jan as output falls -PMI

TOKYO, Feb 1 (Reuters) – Japan’s factory activity slipped back into contraction in January, starting the year on a sour note as a rise in COVID-19 infections and a new state of emergency in the country hit operating conditions.

Manufacturers reported a renewed fall in output volumes, according to the private-sector data, sharply contrasting with Friday’s more upbeat government estimates that showed producers expecting a sharp rebound in output in January.

The final au Jibun Bank Japan Manufacturing Purchasing Managers’ Index (PMI) fell to a seasonally adjusted 49.8 in January from the prior month’s stable 50.0 reading.

The fall in the headline figure, which was a notch above a preliminary 49.7 reading, was mainly due to a new slump in employment and output.

Firms attributed the production falls to restrictions implemented under the state of emergency called by Prime Minister Yoshihide last month, which covers Tokyo and other areas accounting for 55% of the nation’s population.

“Despite broad stabilisation in December, the decline in January meant that the sector has not registered growth since April 2019,” said Usamah Bhatti, economist at IHS Markit, which compiles the survey.

“Manufacturers indicated a renewed fall in output levels in the latest survey period. Moreover, firms were further discouraged to replace voluntary leavers in the sector as staffing levels reduced in January.”

The PMI survey showed other indicators such as suppliers’ delivery times and new export orders dropped at their fastest pace in seven and four months, respectively, as COVID-19-related supply chain disruptions weighed.

Growth expectations for the year ahead remained positive for the eighth consecutive month as hopes of an end to the pandemic and a wider economic recovery underpinned sentiment.

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