Despite continuing to expand in the past 11 months, the pace of Japan's manufacturing index was pressured by expensive raw material prices and supply chain bottlenecks.
On Tuesday (04/January), the Japanese Cabinet office released December Final Manufacturing PMI data which was perched at the level of 54.3, slowing down from the previous month's level of 54.5. In recent months, Japan's industrial and business sectors have indeed benefited from the easing of the COVID-19 pandemic, which has prompted a recovery in economic activity. However, supply chain issues and raw material prices overshadow Japan's manufacturing outlook.
In general, consumer demand has been positive. "The domestic market is being supported by a gradual recovery from the effects of the pandemic that hit Japan's manufacturing sector in Q3/2021," said Usamah Bhatti, economist at IHS Markit in a note.
The recovery in the supply of spare parts has actually succeeded in helping to reduce the impact of soaring raw material prices and global trade chain bottlenecks that have occurred since 2020. However, orders for Japanese automotive products and motor vehicles from abroad are still weak. This is in connection with the sharp increase in COVID cases in several Japanese export destinations such as South Korea, the US and Europe.
Economists view that the conditions facing Japanese manufacturers during the last quarter of last year was one of the worst performers since the Manufacturing PMI survey was held. "Although still optimistic, Japanese manufacturers are currently wary of the continued impact of the pandemic and global supply chain disruptions that have pushed producer confidence to its lowest level since August 2021," Bhatti said.
USD/JPY continues gains
After the release of Japanese Manufacturing PMI data this morning, the movement of the Yen was observed to weaken against the US Dollar. The USD/JPY pair is hovering around 115.35, up 0.04 percent on a daily basis. Technically, the US Dollar is currently on the path of strengthening for five consecutive sessions. Higher US bond yields and easing risk-off sentiment make the US dollar more attractive to investors.
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