Japan PMI October 2019


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.

FocusEconomics Consensus Forecast panelists expect private non-residential investment to rise 0.7% in 2020, which is down 0.2 percentage points over last month’s projection. In 2021, the panel sees private non-residential investment expanding 2.0%.

Author: Ricard Torné, Lead Economist

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Japan PMI Chart

Japan PMI October 2019

Note: Jibun Bank Composite, Manufacturing and Services Purchasing Managers’ Index. Readings above 50 indicate an expansion while readings below 50 indicate a contraction.
Source: IHS Markit and Jibun Bank.

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