TOKYO, (Reuters) - Japanese manufacturing activity contracted in June to hit a three-month low, a revised survey showed on Monday, offering fresh evidence of an economy under the pump as global demand weakened in the face of a heated U.S.-China trade conflict.
The final Jibun Bank Japan Manufacturing Purchasing Managers’ Index (PMI) dropped to a seasonally adjusted 49.3 from 49.8 in May, and also down from a preliminary reading of 49.5.
The index was at its lowest since March, and remained below the 50 threshold that separates contraction from expansion for the second consecutive month.
The final reading for new export orders was 46.1, the worst slump since January, and underlining that frail global demand remains a major pressure point for the world’s third-largest economy.
“Japanese manufacturers continued to suffer from the slowdown in global trade volumes and weaker overseas demand conditions in June,” said Tim Moore, associate director at IHS Markit, which compiles the survey.
“Survey respondents linked the fall in exports to softer demand from customers in China, alongside a drag on sales from global trade frictions and weakness in the automotive sector.”
Manufacturers widely reported that lower sales to clients in China had acted as a brake on new export orders. Production volumes fell for the sixth month, marking the longest period of decline since 2012-13.
Japan’s export-focused economy is sensitive to changes in global demand, particularly in neighboring China, its largest trading partner. Faltering demand from overseas also poses a threat to the earnings’ outlook of Japan Inc.
There was some encouraging news on Japan’s industrial output front, with data on Friday showing production rose for a second straight month in May. Yet the outlook wasn’t as rosy, as manufacturers surveyed by the Ministry of Economy, Trade and Industry said they expect output to fall 1.2% in June and increase only slightly by 0.3% in July.
Japan’s exports in May declined for the sixth month as China-bound shipments of semiconductor manufacturing equipment and car parts weakened, in a sign of a deteriorating outlook for growth.
Underscoring the risks Japanese firms face in the months ahead, the June PMI data signaled a sharp and accelerated reduction in unfinished work across the manufacturing sector.
The final reading for backlogs of work slumped to 44.7 from 46.6 in May, hitting the lowest level since January 2013, which was primarily attributed to a lack of pressure on operating capacity, including among intermediate goods producers.
“Manufacturers of capital equipment also signaled an export-led downturn in sales during June, while consumer goods producers bucked the overall trend by achieving a sustained rise in new work,” Moore said.
Reporting by Daniel Leussink; Editing by Shri Navaratnam