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Japan: PMI Contracts At Sharpest Rate In 19 Months!

  • Written by Syndicated Publisher No Comments Comments
    December 4, 2012

    In Japan things have gone from Grim to Grimmer. The Markit/JMMA Japan Manufacturing PMI™ shows Japanese manufacturing sector contracts at sharpest rate in 19 months.

     Key points:

    Output and new orders both continue to decline
    Capital goods producers register sharpest falls in production and sales
    Inventories and employment cut amid subdued economic outlook

    Summary:

    Operating conditions in the Japanese manufacturing sector continued to worsen in November. The deterioration was driven by falls in output, new orders and employment as the economic climate remained difficult. Amid an uncertain outlook, manufacturers also cut inventory levels and lowered purchasing activity.

    Investment goods producers also recorded the steepest fall in staffing levels during November. With the consumer and intermediate market groups also registering reductions in employment, a net fall in total manufacturing payroll numbers was recorded for the second month in succession.

    Reduced sales and a subdued economic outlook were reported to have led to the reduction in staffing levels in the latest survey period. Similar factors led to declines in inventories and purchasing activity over the month. The fall in stocks of raw materials and semi-manufactured goods was the steepest in over a year-and-a-half, while input buying was pared to the steepest degree since April 2011.

    Watch Japan’s Current Account and the Yen

    On November 12, in Japan Plunges Into Deep Recession; GDP Shrinks 3.5% Annualized; Japan Current Account Turns Negative First Time in 30 Years I noted that Japan trade deficit hits record as relations with China poisoned.

     Japan Current Account Turns Negative

    The trick for Japan is how to finance its national debt, now at a majorly unsustainable 235% of GDP.

    Japan was able to do so for years on account of its current account surplus, of which trade is typically the largest component.

    You can now kiss that surplus goodbye because Japan Current Account Turns Negative

    Bug in Search of Windshield

    As my friend John Mauldin suggests, Japan is a bug in search of a windshield. I highly doubt Japan can make it to 2022 or even 2017 before it runs into serious issues.

    Actually, Japan has extremely serious issues already, it’s just that the market is ignoring them for now. If interest rates rise by a mere 2% or so, interest on the national debt will consume 100% of Japanese tax revenue.

    Global imbalances are mounting. I suspect within the next couple of years (if not 2013) Japan will resort to the printing press to finance interest on its national debt and the Japanese central bank will start a major currency war with all its trading partners to force down the value of the yen.

    Mike “Mish” Shedlock
    http://globaleconomicanalysis.blogspot.com

    Read more at

    http://globaleconomicanalysis.blogspot.com/2012/11/japan-manufacturing-contracts-at.html#PoELsJlPrC6sQImy.99

    Images: Flickr (licence attribution)

    About The Author

    Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.  Visit Sitka Pacific’s Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

    You are currently viewing my global economics blog which typically has commentary every day of the week. I am also a contributing “professor” on Minyanville, a community site focused on economic and financial education.  Every Thursday I do a podcast on HoweStreet and on an ad hoc basis contribute to many other sites.

    When not writing about stocks or the economy I spend a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com.

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