TOKYO (Reuters) – Japan’s factory activity contracted at the slowest pace in six months in August, reducing some of the heat on policymakers pressured to take more radical steps to prevent the economy from sliding deeper into recession.
The world’s third-largest economy is expected to see a modest bounce in the current quarter after a record slump in April-June as new coronavirus cases keep a lid on consumer sentiment and slow the overall recovery.
Tuesday’s final au Jibun Bank Manufacturing Purchasing Managers’ Index (PMI) rose to a seasonally adjusted 47.2 in August from 45.2 in July. It marked the slowest contraction since February, and also eclipsed a preliminary reading of 46.6.
“The easing of restrictions related to COVID-19 around the world helped to soften falls in key metrics such as production and new work,” said Annabel Fiddes, economics associate director at IHS Markit, which compiles the survey.
But the pandemic continued to limit the performance of the sector as a whole, with firms feeling pressured to cut their prices due to relatively weak demand.
Another month of shrinkage in overall output and new orders held the headline index below the 50.0 threshold that separates contraction from expansion for a 16th month, matching a similar run through June 2009.
Many analysts expect only a modest third-quarter rebound, while a firmer recovery is expected to take time as a resurgence in global infections and uncertainty over the outlook for U.S.-China trade threaten overseas demand.
Japan is also dealing with a leadership issue after Prime Minister Shinzo Abe announced his resignation Friday due to the worsening of a chronic illness, stirring doubts about future fiscal and monetary stimulus policies.
Economy Minister Yasutoshi Nishimura last week said he hoped the economy will recover to levels seen before the coronavirus around the first quarter of 2022.
“It is hoped that as economies around the world reopen and business operations normalise, this will feed through to… a recovery of Japanese manufacturing activity in the months ahead,” said Fiddes.
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