Business activity in Japan's private sector continued to decline in September, according to the flash PMI data, setting the scene for further economic weakness in the third quarter. Other survey indicators point to a challenging recovery in the coming months, with demand conditions still subdued.
However, some rays of light are appearing. Despite showing the downturn persisting into the end of the third quarter, the survey also showed some encouraging signs: labour markets moving towards stabilisation and business confidence strengthening further, noticeably among goods producers, amid rising expectations that the pandemic will be brought under control in the year ahead.
Broad-based downturn persists
The headline au Jibun Bank flash Composite PMI, compiled by IHS Markit and based on 85-90% of responses received from the monthly surveys, edged up from 45.2 in August to 45.5 in September. The index signalled a further marked decline in private sector output across both manufacturing and services but with the rate of decline easing slightly.
While the latest survey data pointed to a slow pace of recovery from the COVID-19 downturn, particularly in light of stronger recoveries observed in other advanced economies, the picture for Japan's economy was much improved in the third quarter when compared to the height of the pandemic during the second quarter. At 45.2, the average PMI for the three months ending September was the highest so far this year, and noticeably higher than the 31.5 recorded in the second quarter.
The survey also revealed some positive signs. Firstly, overall employment moved closer to stabilisation in September, with only a marginal drop in workforce numbers that was the weakest fall seen in the current sequence of job shedding. Secondly, business sentiment improved to the strongest since the start of the year, rising especially among manufacturing firms. In fact, the level of optimism in the manufacturing sector rose to the
