Japan: Sales tax hike weighs on composite PMI in October
November 6, 2019
The Jibun Bank composite Purchasing Managers’ Index (PMI) fell from September’s 51.5 to 49.1 in October. As a result, the index now lies below the 50 threshold that separates expansion from contraction in the private sector for the first time since mid-2016.
The drop in the composite index mostly reflected the introduction of a sales tax hike on 1 October and a devastating typhoon. As a result, Japan’s service sector fell to its lowest level since September 2016. However, the plunge could be short-lived. As Joe Hayes, an economist at IHS Markit, comments:
“There are reasons to be positive as new orders continued to rise, despite the poor weather exacerbating negative effects from the sales tax hike. This contrasts with April 2014, the last time the sales tax was increased, when new orders dipped into contraction territory. This would hint that the impact this time round has not been as detrimental on the Japanese economy.”
About the manufacturing sector, a fall in new orders led to a sharp decline in production. An adverse global economic backdrop and signs of weak domestic demand are weighing on all-important manufacturing activities.