Japan's Manufacturing Industry Expands Despite Recession

After falling into a shocking recession last year, Japan’s manufacturing industry shows signs of hope as growth was sustained in December. The Markit/JMMA purchasing manager’s index was measured at 52, and demonstrated the seventh consecutive month for manufacturing growth in Japan. As a matter of fact, this growth rate is the most rapid rate since May of last year, suggesting that Japan’s economy may not be in as terrible condition as previously thought.

The increase in manufacturing growth can be attributed to increases in production, new orders, and payroll numbers as well. Although the yen has consistently depreciated following the April sales tax hike, upward pressures on prices still remain. Additionally, new export orders rose for the sixth month in a row, demonstrating Japan’s continuously active role in international trade.

In late December, the Japanese government approved about $29 billion (3.5 trillion yen) in stimulus spending to promote growth in lagging regions. The stimulus package was approved shortly after Prime Minister Abe’s ruling coalition was elected once again, assuring their ability to utilize Abenomics policies to attempt to reflate the long-suffering economy. Japanese government officials believe that the stimulus plan will boost the country’s GDP by 0.7%. Corporate tax cuts are also expected to be implemented in April, with hopes of increasing activity and encouraging firms to pay higher wages to its workers.

The Markit/JMMA purchasing manager’s index has a 50 threshold which separates contraction from expansion. Japan’s output component of the index was measured at 52.5, which is less than the previous month and 0.8 below the forecasted value. However, since the figure is still slightly above 50, this shows that the manufacturing industry is still growing the amount of output produced. The Japanese economy overall is expected to have resumed expansion in the fourth quarter, as spending has recovered and companies increased capital expenditures. But economists will not know for sure until reports are released.