Japan factory activity contracts as state of emergency weighs

TOKYO (Reuters): Japan's factory activity slipped into contraction in January and the services sector was more pessimistic, a private-sector survey showed on Friday (Jan 22), as emergency measures taken in response to a resurgence of Covid-19 infections hurt sentiment.

Japanese Prime Minister Suga this month announced a second state of emergency in the country to stem a rise in coronavirus cases, which now covers Tokyo, Osaka, Kyoto and other areas accounting for 55 per cent of the nation's population.

The au Jibun Bank Flash Japan Manufacturing Purchasing Managers' Index (PMI) fell to 49.7 from a final 50.0 in December, largely due weakening output and new export orders as well as employment conditions.

The headline index slipped back under the 50.0 threshold that separates contraction from expansion after stabilising for the first time in 20 months in the previous month.

"The Japanese private sector economy entered the new year as it ended the last, with flash PMI survey data signalling a faster deterioration in business activity in January," said Usamah Bhatti, economist at IHS Markit, which compiles the survey.

"Demand conditions weakened further, as new business inflows contracted for the twelfth successive month."

Government data on Thursday showed Japan's exports rose for the first time in two years in December, though the pace of recovery in shipments paled in comparison with China and South Korea, which saw double-digit growth led by global demand for chips and tech products.

Private businesses feared a prolonged impact from the health crisis on top of short-term challenges posed by a resurgence in infection cases, Mr Bhatti said.

The PMI survey pointed to some bright spots, with overall new orders expanding for the first time since December 2018 and output prices hitting their highest level since May 2019.

But the data also showed services-sector activity taking a big hit from the latest anti-virus emergency measures, with incoming new business at their weakest since May, the month when the country's prior state of emergency ended.

Overall, the au Jibun Bank Flash Services PMI index posted a sharp decline, falling to a five-month low of 45.7 on a seasonally adjusted basis from December's final of 47.7.

The au Jibun Bank Flash Japan Composite PMI, which is calculated using both manufacturing and services, dropped to 46.7 in January from the previous month's final of 48.5.

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