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• The manufacturing PMI was sub-50 while the services PMI expanded in Japan.
• Exports unexpectedly rose leading to a surprise trade surplus.
• Imports shrunk, marking a ninth month of declines.

The au Jibun Bank flash Japan manufacturing PMI edged higher to 48.0 for January 2024 as compared to 47.9 in December 2023.

A reading of below 50 indicates contraction.

The January 2024 reading marked the eighth month in a row that PMI was in contractionary territory, i.e. since June 2023.

This was also below consensus estimates of 48.2, as new orders and total factory output continued to recede on weakened demand.

Services PMI

However, in the services sector, business momentum improved with the flash services PMI expanding to 52.7 as against last month’s 51.5.

This was not only the strongest pace of growth since September 2023, but marked the seventeenth consecutive 50-plus reading for the gauge.

Optimism was high in the services sector while overseas demand showed robust momentum.

The composite index registered a rise to 51.1 as against an even 50.0 in November 2023 and was above the contraction of 49.5 forecast by analysts at TradingEconomics.com.

The agency forecasts composite PMI to improve to 53.0 by the end of the quarter.

Trade Data

Balance of Trade data released by the Ministry of Finance in Japan, showed an unexpected improvement to JPY 62.10 billion for the month of December 2023, marking the first surplus in three months.

This was above consensus estimates of a deficit month and followed the November 2023 deficit of JPY (-)780.4 billion.

Exports

Exports surged 9.8% to reach a record high of JPY 9,648.2 billion in December 2023.

Key contributions were from cars, motor vehicles, and semiconductor machinery, which rose by 38.8%, 35.9%, and 7.9%, respectively.

Iron and steel exports were compressed by (-)6.4%.

In terms of trade partners, exports to Australia, the US, and Hong Kong rose 24.5%, 20.4%, and 19.1%, respectively.

Imports

While exports increased, imports reduced in December 2023, shrinking 6.8% to JPY 9,586.1 billion, marking nine consecutive declines since April 2023.

Monetary policy

In yesterday’s announcement, the Bank of Japan (BoJ) maintained its ultra-easy policy even as inflation remained above the target for nearly two years.

Central bank authorities are closely monitoring wage negotiations with labour unions which are expected to yield fresh agreements in the next couple of months.

Interested readers can visit yesterday’s BoJ commentary here.

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