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Japan's manufacturing activity shrinks in May, heightens economic strain - PMI

Japan's manufacturing activity shrinks in May, heightens economic strain - PMI
FILE PHOTO: An engineer makes an arm rail for residential buildings inside a metal processing factory at an industrial zone in downtown Tokyo, Japan, March 22, 2016. REUTERS/Yuya Shino/File Photo -
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Yuya Shino(Reuters)
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TOKYO (Reuters) – Japanese manufacturing activity swung back into contraction in May as export orders tumbled at the fastest pace in four months, a revised survey showed on Monday, underlining the growing economic impact of a bruising Sino-U.S. trade war.

The Final Markit/Nikkei Japan Manufacturing Purchasing Managers Index (PMI) was 49.8, compared with a flash reading of 49.6 and a final 50.2 in the previous month.

The 50-mark separates contraction from expansion, and the latest result dashed expectations that Japan’s crucial manufacturing sector had started to bottom out after shrinking in both February and March.

The United States and China have slapped tariffs on each other’s goods in a trade row that is slowing the global economy. Japan is vulnerable because many of its manufacturers rely on Chinese demand for construction equipment, heavy machinery, and electronic parts.

“Weak demand from Japan’s key trade partner, China, as well as signs of an increasingly sluggish domestic economy, have impacted sales volumes,” said Joe Hayes, economist at IHS Markit, which compiles the survey.

“Given the importance of capital goods to Japan’s foreign trade, it would suggest further difficulties lie ahead for Japanese exporters.”

The final index for new export orders was 47.5, marking the sixth consecutive month of contraction, versus a preliminary 47.1 and a final 47.8 in April. New orders, a measure of domestic demand, also contracted last month in reflection of the increasing pressure on Japanese businesses, with several firms cutting their earnings forecasts recently.

Adding to the pressure on the broader economy, the revised survey confirmed companies’ expectations for future output contracted for the first time since November 2012.

“Re-escalated trade tensions between China and the U.S. merely add to existing concerns for manufacturers,” Hayes said.

(Reporting by Stanley White; Editing by Shri Navaratnam; stanley.white@thomsonreuters.com; +81 3 6441 1984 twitter.com/stanleywhite1; Reuters Messaging: stanley.white.reuters.com@reuters.net)

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