(Bloomberg) --
Activity in Japan’s manufacturing sector contracted at the fastest clip in seven months in September, according to the latest PMI data, as U.S.-China trade tensions continued to cloud the global outlook.
The Jibun Bank Purchasing Managers Index fell to 48.9 from 49.3 in August, matching the lowest reading since June 2016. A number below 50 indicates a contraction. Activity in Japan’s manufacturing sector has now shrunk in seven months this year, according to the data.
Today’s release comes with the Bank of Japan looking closely at the impact of a global slowdown on Japan’s economy and prices. The BOJ kept policy on hold last week, but its call for a review of economic and price developments has added to speculation it may take further easing action at its October meeting.
“Anecdotal evidence further highlighted the strong external headwinds Japanese manufacturers were faced with,” said Joe Hayes, an economist at IHS Markit, which compiles the survey. He cited the U.S.-China trade tensions, the protests in Hong Kong, Brexit and the diplomatic spat between Tokyo and Seoul among those headwinds.
While the latest PMI figures also showed Japan’s service activity continuing to expand, the data adds to concerns over weakness in the nation’s manufacturing sector.
The BOJ’s Tankan survey of business sentiment, due next week, is likely to show a similar picture of growing gloom in manufacturing and continuing robustness in the mood of non-manufacturers.
The question for policy makers is how long the service sector will prop up the economy, given a potential hit from a sales tax increase due on Oct. 1. In 2014, the last time the consumption tax was increased, the economy contracted more than 7% in the next quarter.
“If history is anything to go by, the final few months of 2019 will be difficult for Japanese businesses and consumers alike,” Hayes said.
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