Today sees the latest release of the Japan Flash PMI Composite. It is released on a monthly basis approximately one week before the final PMI data, making the PMI the earliest available indicator of private sector operating conditions in Japan. The estimate is typically based on approximately 85%-90% of total PMI survey responses each month and is designed to provide an accurate indication of the final PMI data.
Commenting on the latest survey results, Usama Bhatti, Economist, said
“The December flash PMI data pointed to a further expansion in business activity at Japanese private sector companies at the end of 2024. The growth was only marginal but the most pronounced since September, amid an acceleration in the services sector’s expansion. Meanwhile, manufacturing output remained weak, contracting for the fourth consecutive month. “The divergent trends in demand continued, with services firms seeing the strongest rise in new business in four months, while goods producers saw a sharper decline in orders.
“Stubborn inflation hampered Japan’s stronger private sector expansion in December. Average input prices rose markedly again, at the fastest rate in four months, with anecdotal evidence highlighting in particular the impact of a weaker yen on foreign-sourced inputs. As such, selling price inflation also accelerated during the month and was the fastest since May. “Overall optimism levels remained above average, suggesting that firms were confident that output would continue to rise in the year ahead. However, business confidence fell to the second-weakest level in more than three years. Anecdotal evidence pointed to concerns over labour supply, while other firms cited the impact of rising inflation on activity.”
Manufacturing business conditions deteriorate for sixth straight month
Manufacturing company The headline figure is the Purchasing Managers’ Index (PMI), a single-digit composite indicator of manufacturing performance. The PMI is a weighted average of the following five indicators: new orders (30%), output (25%), employment (20%), suppliers’ delivery times (15%) and stocks of purchases (10 to 49.5 in December. The latest reading indicated that manufacturing business conditions deteriorated for the sixth consecutive month, albeit only slightly. New orders continued to fall and at a faster pace than in November.
At the same time, output fell only slightly as increased workforce capacity supported the strongest clearing of backlogs since March. Input price inflation remained elevated in December, with the sharpest rate of increase in four months. This contributed to the biggest rise in output prices since July. While businesses remained optimistic about output growth over the coming year, the confidence score fell to its lowest level since May 2022.
From survey responses from a group of around 400 companies in the services sector. The sectors covered include consumer (excluding retail), transport, information and communications, finance, insurance, real estate and business services. The headline figure is the services business activity index, which tracks changes in the volume of business activity compared to The previous month. A reading above 50 indicates an overall increase from the previous month, while a reading below 50 indicates an overall decline.
The Ojibun Flash Japan Services Business Activity Index came in at 51.4 in December, up from a final reading of 50.5 in November. This indicated that service activity rose for a second straight month and at a stronger pace. The latest uptick in activity resulted from a pick-up in new business, with growth reaching a four-month high. In contrast, service providers hired additional staff to cope with ongoing workloads and reduce backlogs of outstanding work.
Total MoM
Survey respondents collect responses during the second half of each month and indicate the direction of change compared to the previous month. A diffusion index calculates for each survey variable. The index is the sum of the percentage of “up” responses and half the percentage of “unchanged” responses. The indexes range from 0 to 100, with a reading above 50 indicating an overall increase compared to the previous month, and below 50 indicating an overall decrease. The team seasonally adjusts the indexes. The composite indices represent weighted averages of comparable manufacturing and services indices. The weights reflect the relative size of the manufacturing and services sectors according to official GDP data.
The headline figure is the composite output index. This index is a weighted average of the industrial output index and the service business activity index. The composite output index may refer to the “composite PMI,” but it does not compare to the headline manufacturing PMI figure.
The headline figure for services is the service business activity index. This diffusion index calculates from a question asking about changes in the volume of business activity compared to the previous month. The service business activity index is comparable to the industrial output index. It may be referred to as the “services PMI” but is not comparable to the headline manufacturing PMI.
The headline manufacturing figure is the Purchasing Managers’ Index (PMI), a single-digit composite indicator of manufacturing performance. The PMI is a weighted average of the following five indicators: new orders (30%), output (25%), employment (20%), supplier delivery times (15%) and purchase inventories (10%). To calculate the PMI, the supplier delivery times index is reversed so that it moves in a similar direction to the other indicators.
