Japan February factory growth slows as yen dents export orders
TOKYO (Reuters) – Japanese manufacturing activity expanded at a slower pace in February as growth of new export orders slowed due to the yen’s appreciation, showing the corporate sector remains highly sensitive to currency market moves.
The Flash Markit/Nikkei Japan Manufacturing Purchasing Managers Index (PMI) fell to a seasonally adjusted 54.0 in February from a final 54.8 in January.
The index remained above the 50 threshold that separates expansion from contraction for the 18th consecutive month but declined for the first time in four months.
“Recent yen appreciation has coincided with slower new export order growth,” said Joe Hayes, economist at IHS Markit, which compiles the survey.
“Furthermore, a number of panelists indicated that the stronger currency had prompted them to lower prices to overseas customers.”
The index for new export orders fell to a preliminary 54.0 from a final 57.4 in the previous month to reach the lowest level in three months.
The output component of PMI fell to 53.7, a four-month low, from 54.7 in January.
The yen has risen around 5.5 percent versus the dollar this year, hitting a 15-month high of 106.30 on Feb. 15.
The yen’s appreciation prompted a flurry of comments from Japanese policymakers attempting to talk down their currency.
Japanese policymakers and companies tend to speak unfavourably of a strong yen because this can lower exporters’ earnings and increase deflationary pressure by reducing import prices.
Japan’s economy has grown for eight straight quarters, the longest continuous expansion since a 12-quarter stretch between April-June 1986 and January-March 1989 around the height of Japan’s notorious economic bubble.
Many economists expect growth to continue as domestic demand strengthens, but further weakening in the yen could pose a risk to prospects for continued expansion.